Home building slows to fewest starts in decade

WASHINGTON -- Construction of new homes fell in July to the lowest level in 10½ years, and analysts said there is no end in sight to the deepening housing slump.

The Commerce Department reported Thursday construction of new homes and apartments dropped by 6.1 percent in July from the June pace to an annual rate of 1.38 million units.

That was down 20.9 percent from the pace of activity a year ago and represented the slowest construction pace since January 1997.

Analysts said the housing problems are worsening because of rising mortgage defaults, especially in the market for subprime loans for buyers with spotty credit histories. That is dumping more homes on an already glutted market and causing banks to tighten up on lending standards, making it harder for prospective buyers to qualify for new mortgages.

"Declining starts and permits clearly reflect deepening problems in the mortgage market which erupted earlier this year in the subprime sector and now have spilled over into other components of mortgage finance," said David Seiders, chief economist for the National Association of Home Builders.

Seiders said it would be some time before housing would start to rebound. He is forecasting sales will stop falling by the end of this year and construction will stabilize in the middle of 2008.

Other analysts said to expect more bad news before housing stabilizes.

"As bad as July's numbers were, they are bound to get worse in the next one to three months because of the turmoil in financial markets today," said Patrick Newport, chief U.S. economist for Global Insight. "A mortgage is getting harder to get, especially for those who cannot qualify for prime loans."

The troubles in subprime mortgages have roiled other segments of the credit market and sent stock prices plunging in recent days as investors have worried about what big institutions could be put at risk because they cannot get repaid on loans they have made.

Applications for building permits, considered a good barometer of future activity, fell by 2.8 percent in July to an annual rate of 1.373 million units.

Housing construction fell in all parts of the country except the Midwest, which posted a 2.6 percent increase in July. Construction starts were down 11 percent in the South, 3.7 percent in the West and 1.3 percent in the Northeast.

The current housing slump is the worst since a downturn that occurred during an economic recession in 1990-91.