Housing construction level dropped in November with single-family activity reaching the lowest level in more than 16 years.
The Commerce Department reported Tuesday that construction of new homes and apartments dropped by 3.7 percent last month to a seasonally adjusted annual rate of 1.187 million units.
Construction of single-family homes fell by 5.5 percent to an annual rate of 829,000 units. It was the eighth consecutive drop in single-family starts, pushing activity in this area to the lowest level since April 1991. Apartment building rose last month by 4.4 percent to an annual rate of 332,000 units.
In an ominous sign for future activity, the government reported that applications for building permits fell for a sixth straight month, dropping by 1.5 percent to a seasonally adjusted annual rate of 1.15 million units, the slowest pace for building permits since June 1993.
The overall construction decline left home building 24.2 percent below the level of activity a year ago. After five straight years of record sales and soaring prices, housing has been in a serious downturn for two years.
Analysts expect the weakness to intensify in coming months, possibly becoming enough of a drag to push the United States into a full-blown recession.
"The housing recession continues to grind away," said Brian Bethune, an economist at Global Insight. "The housing market is now navigating through perfect storm conditions." He said a downward spiral in sales is being exacerbated by the severe credit crunch and rising mortgage foreclosures which are dumping more homes on an already glutted market.
Bethune predicted that housing would subtract 1.5 percentage points from overall growth this year and the first three months of 2008. Many economists believe the economy during this period will grow at a barely discernible 1 percent annual rate, a significant drop from the July-September period when the economy was expanding at a 4.9 percent rate despite the problems in housing.
The housing downturn has intensified since a severe credit crunch erupted in August, drying up many sources of home loans and causing large banks and investment houses to declare billions of dollars of losses from the rising number of mortgage defaults.
The Federal Reserve, worried that the credit crunch will add to the economy's other problems, is searching for innovative ways to pump more money into the financial system, including a series of unprecedented auctions that started this week.
Fed officials on Tuesday endorsed new rules that would give people taking out home mortgages new protections against predatory lending practices.
The National Association of Home Builders reported that its index of builder sentiment remained at a record low for a third straight month in early December.
David Seiders, chief economist for the builders, forecast that housing construction for this year will fall by a sharp 26 percent following a decline of 13 percent in 2006. He predicted a further decline of 19 percent in 2008 before construction rebounds in 2009.
"We thought that the demand side of the housing market was stabilizing in late 2006 and early this year. But then the housing finance system started to melt down," Seiders said.
The slump in housing is already the worst since the early 1980s and some economists believe in terms of price declines it may end up being the worst period since the Great Depression.
The new housing report showed that construction activity was down in all regions of the country in November expect the South, which saw a small 0.3 percent rise.
Construction plummeted 16.3 percent in the Northeast and fell 6.9 percent in the West and 1.5 percent in the Midwest.