U.S. Housing Starts Drop to Lowest Level Since 1991

U.S. Housing Starts Drop to Lowest Level Since 1991

Jan. 17 (Bloomberg) -- Builders in the U.S. broke ground in December on fewer houses than forecast, making last year's decline in homebuilding the worst in almost three decades.

The 14 percent decrease to an annual rate of 1.006 million, the lowest since 1991, followed a 1.173 million pace the prior month, the Commerce Department said today in Washington. For all of 2007, starts were down 25 percent, the biggest decline since 1980, to 1.354 million.

Building permits, a sign of future construction, declined by the most in 12 years, suggesting the housing slump will deepen as it enters a third year. Rising foreclosures will throw even more houses onto the market, hurting property values and threatening to push the economy into recession, economists said.

``Housing is getting punished by credit-market problems just as much as the economy is,'' said Adam York, an economist at Wachovia Corp. in Charlotte, North Carolina, who had forecast a decline to a 1.07 million pace. ``We expect this pressure to continue into 2008.''

Initial claims for unemployment insurance unexpectedly dropped to a three-month low, the Labor Department said separately today. Jobless claims declined by 21,000 to 301,000 in the week ended Jan. 12.

Economists' Forecasts

Housing starts were projected to fall to a 1.145 million pace from a previously reported 1.187 million rate in November, according to the median forecast of 74 economists polled by Bloomberg News. Estimates ranged from 1.05 million to 1.2 million.

Permits fell 8.1 percent to a 1.068 million annual rate, bringing 2007's decline to 25 percent, the biggest since 1974. Permits were forecast to drop to a 1.135 million annual pace, according to the survey median, after 1.162 million. Projections ranged from 1.05 million to 1.17 million.

Construction of single-family homes decreased 2.9 percent to a 794,000 rate, today's report showed. Work on multifamily homes, such as townhouses and apartment buildings, plunged 40 percent to an annual rate of 212,000 from the prior month.

The decrease in starts was led by a 31 percent slump in the Midwest and a 26 percent decline in the Northeast.

Federal Reserve policy makers, including Chairman Ben S. Bernanke, have signaled they may take more aggressive action in response to the increasing risk of slower growth. Central bankers are likely to cut interest rates by half a percentage point when they meet this month, according to futures trading.

Bernanke to Speak

Bernanke will testify on the economic outlook before the House Budget Committee at 10:00 a.m. today.

``The demand for housing seems to have weakened further, in part reflecting ongoing problems in mortgage markets,'' Bernanke said in a speech in Washington on Jan. 10. ``We also see considerable evidence that banks have become more restrictive in their lending to firms and households.''

New home sales will probably fall another 15 percent this year after tumbling an estimated 26 percent in 2007, according to a forecast from the Mortgage Bankers Association, the industry's largest trade group. Sales of existing homes will fall 13 percent this year, the group said.

``Conditions continue to be challenging in our markets and are expected to remain so throughout 2008,'' Robert Schottenstein, chief executive officer of M/I Homes Inc., a homebuilder in the Midwest, Florida and Mid-Atlantic states, said in a statement on Jan. 10. The Columbus, Ohio-based company said that sales fell in the fourth quarter.

BLOOMBERG