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House Construction Falls To Level Unseen Since 1991

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By MARTIN CRUTSINGER, The Associated Press

Published: November 21, 2007

WASHINGTON - Construction of single-family homes in October skidded to the lowest level in 16 years although the slide was cushioned somewhat by a rebound in apartment building.

The Commerce Department reported Tuesday that total housing construction rose by 3 percent in October to a seasonally adjusted annual rate of 1.229 million units. All the strength occurred in a hefty rebound in apartment construction, which is extremely volatile.

The bigger single-family sector actually fell 7.3 percent to an annual rate of 884,000 units, the slowest pace since October 1991, when housing was going through another steep downturn.

In another worrisome sign, applications for building permits fell for a fifth straight month.

The current housing slump is expected to worsen further before starting to rebound in the middle of next year.

The credit crunch that hit with force in August has caused financial institutions to tighten their lending standards, making it harder for prospective borrowers to get home loans.

In addition, some 2 million borrowers who took out subprime loans during the peak of the five-year housing boom are now seeing low introductory rates reset to much higher levels, adding $250 to $300 to the typical monthly payment. The concern is that this will fuel a tidal wave of defaults over the next two years, dumping even more unsold homes onto the market.

Analysts predicted that construction activity will slump even more in coming months as builders strive to reduce their inventory of unsold homes. They noted that applications for new building permits, considered a good barometer of future activity, fell 6.6 percent to an annual rate of 1.178 million units.

"This is just what the doctor ordered," said David Seiders, chief economist of the National Association of Home Builders. "Given weak demand and the large overhang of inventory, you just have to cut back on production."

The association's monthly survey of builder sentiment remained at a record low in early November. Seiders said that reflected the further tightening in mortgage lending standards that has been occurring since financial markets were roiled this summer by rising defaults on subprime mortgages offered to people with weak credit histories.

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