The Commerce Department said that construction of single-family homes dropped 12 percent to a 544,000 annual rate. Starts on all residential properties, including condominiums, slid to 817,000, below all 74 forecasts in a Bloomberg News survey.
Builders will find it difficult to lure buyers into the market after stock prices plunged this month and banks made it harder to qualify for a mortgage. Declines in construction are likely to continue to hurt economic growth well into 2009, extending the housing slump into a fourth year.
"The full impact from the financial meltdown is yet to come,'' said David Sloan, a senior economist at 4Cast Inc. in New York, whose estimate matched the lowest in the Bloomberg survey. "Housing will be a drag on growth into the middle of next year. The bottom is now looking further away than it did previously.''