Home construction sinks to lowest rate in over 6 years
By Martin Crutsinger
By Martin Crutsinger
WASHINGTON — Home construction plunged in October to the lowest level in more than six years, dashing hopes that the bottom has been found in the troubled housing sector.
Further declines were expected as the five-year housing boom turns into what is being called a "housing recession."
Construction of new single-family homes and apartments dropped 14.6 percent to an annual rate of 1.486 million units, the slowest pace since July 2000.
The news was even more stark for building permits, which fell for a record ninth consecutive month, dropping 6.3 percent to an annual rate of 1.535 million units, the slowest pace in nine years.
"A tornado hit the housing sector in October," said Joel Naroff, chief economist at Naroff Economic Advisors, a private forecasting firm. "Builders have seen the light from the housing market meltdown and are now moving as rapidly as possible to reduce supply."
Housing, which had been one of the economy's standout performers during a five-year boom, shaved about a percentage point off growth in the July-September quarter. That pushed overall economic activity as measured by the gross domestic product down to an anemic rate of just 1.6 percent, the slowest growth in more than three years.
Many economists predicted that GDP growth would be trimmed by a similar amount in the current quarter as housing continues to act as a drag, through lower sales and reduced building activity. Construction in October stood 27.4 percent below the level of activity a year ago, the biggest year-over-year decline in more than 15 years.
"The scale of the yearly decline is now in housing recession territory," said Brian Bethune, chief economist at Global Insight, a Lexington, Mass., forecasting firm.
With inventories of unsold new and existing homes near record levels, many analysts said the slump in housing was likely to last for a number of months more, possibly until the middle of next year.
But some economists noted some faint hints of a turnaround. A monthly survey of builder sentiment conducted by the National Association of Home Builders was up in November for the second straight month, the first back-to-back gains since mid-2005.
The hope is that recent declines in mortgage rates, spurred by the decision by the Federal Reserve to put its rate hikes on hold, should entice buyers back into the market.
David Seiders, chief economist for the builders' group, said he still believed what was occurring was a correction in the housing market.