US housing nightmare worsens as starts tumble 10.2 percent
WASHINGTON (AFP) — The bleak US housing picture became even grimmer as US housing starts sank 10.2 percent in September to a 14-year low, government data showed Wednesday.
The report showed the pace of new home construction at an annualized rate of 1.191 million units, weaker than the average forecast of 1.300 million, the lowest since July 1993.
The Commerce Department also revised lower its report for August to show a rate of 1.327 million units from an earlier estimate of 1.331 million.
The September report showed building permits, a sign of future construction activity, fell 7.3 percent to a weaker-than-expected annual pace of 1.226 million.
The figures highlight the horrific slump in US real estate after a sizzling market turned suddenly cold last year. Economists say the slump is the main drag on US economic growth.
"The contraction in the housing sector is transitioning from an average downturn to among the worst in the post-World War II history of the US economy," said Michael Gregory, economist at BMO Capital Markets.
"As the current downturn probes deeper depths, the risk of outright recession will mount."
Brian Bethune, economist at Global Insight, said "the housing market is now navigating through 'perfect storm' conditions -- a downward spiral involving reductions in demand, repetitive slashing of output, downward pressure on prices, tightening credit conditions and rising foreclosures."
Bethune saw the downturn persisting: "It is likely that the peak of this storm will impact the economy in the fourth quarter of 2007 and first quarter of 2008."
Robert Brusca at FAO Economics said it was especially disappointing to see the sharp decline after the trends in recent months had suggested some stabilizations.
"The decelerations are now accelerating," Brusca said.
Over the past 12 months, US housing starts were down 30.8 percent and permits down 25.9 percent.
The massive declines highlight the fact that builders have a big inventory of unsold homes that are keeping prices down. With credit conditions tightening and mortgage delinquencies on the rise, the financial sector is also being affected.
On Tuesday, Treasury Secretary Henry Paulson said the problems in housing represent "the most significant current risk" to the US economy and that policymakers and the private sector should mobilize to alleviate the pain and avert future crises.
Builder confidence has hit an all-time low according to surveys, while the overhang of unsold homes is at its highest level since the early 1990s.
But potential buyers are having a harder time getting mortgages and companies have reported cancellation rates on sales contracts of 50 percent or more. Consumers are also beginning to ignore the builders' incentives and are waiting for even better deals as the housing crunch worsens, according to the National Association of Homebuilders survey released Tuesday.
Some analysts say the extended decline in housing will induce the Federal Reserve to cut rates further after last month's half-point cut in the base rate to 4.75 percent.
"The main concern that declining housing activity presents going forward is that the longer it persists, the greater the risk that it could spread to other areas of the economy such as consumer spending," said Paul Ferley, economist at RBC Financial Group.
Ferley said he is expecting "one final 25-basis point cut in Fed funds to be undertaken as an insurance move to prevent the recent volatility in financial markets from undermining the expansion."
