U.S. housing starts drop to lowest ever

By Jack Healy
International Herald Tribune
Feb. 21, 2009

New-home construction fell to its lowest level on record in January as builders virtually closed up shop amid falling demand, tightened credit markets and a flood of foreclosure properties.

The Commerce Department reported on Wednesday that privately owned housing starts in January fell 16.8 percent from December, to an annual rate of 466,000. That was the slowest pace since at least 1959.

The numbers show a housing market that is still declining after more than two years of slumping prices and lower demand. Home values, which rose steadily for more than a decade, have fallen by an average of about 25 percent from their peaks, and economists expect that prices will continue to slide as more people lose their jobs and the economy slips deeper into recession.

"Housing and the U.S. economy are still in a freefall," said Nariman Behravesh, chief economist at IHS Global Insight. "It's clear that we haven't done anything to stabilize housing. We haven't stabilized the rise in foreclosures. And until we do that, I think we're not going to see a bottom."

President Barack Obama is expected to address the foreclosure crisis and the floundering housing market, which lies at the center of the recession, in a speech later Wednesday in Phoenix. The administration has promised to use some $50 billion from the U.S. government financial bailout to try to keep people in their homes.

The pace of housing starts in January was 56.2 percent below its levels in January 2008, a sign of how dramatically builders have scaled back construction. Single-family housing starts fell 12 percent from December to an annual pace of 347,000.

Building permits, which offer a glimpse of future construction, were also lower in January, falling 4.8 percent to a seasonally adjusted rate of 521,000.

In normal times, builders need to construct anywhere from 1.25 million to 2 million new housing units every year to keep pace with immigration, the natural growth of the country's population and the demand for newer homes, said James Glassman, senior United States economist at JPMorgan Chase.

If there is one bright spot to dwindling new-home construction, it is that supplies will eventually fall in line with demand. At the end of December, the inventory of unsold homes fell to a 9.3-month supply from 11.2-month supply a month earlier, according to the National Association of Realtors.

"Eventually that's how you get your inventory in line," Glassman said. "The problem with the builders is that they're competing with property that's coming to the market from foreclosures. There's this tug of war going on between the resale market and the builders."

In another report, the Federal Reserve said that industry production throttled back in January, mostly because of the auto industry. Production at the nation's factories, mines and utilities fell 1.8 percent last month, the Fed reported. It was the third consecutive month where production was cut back.