WASHINGTON (Reuters) - Housing starts in December fell 14.2% to the lowest pace in more than 16 years, while building permits, a sign of future construction plans, dropped to levels not seen since early 1993, a government report showed Thursday.
The Commerce Department said December housing starts set an annual pace of 1.006 million units in December, lower than the 1.140 million units expected by economists. It was the lowest pace for housing starts since the May 1991 rate of 996,000 units.
The 1.354 million new homes and apartments last year, down 24.8% from 2006, was the lowest total since 1.288 million units in 1993. It was the second biggest annual decline on record, exceeded only by a 26% plunge in 1980, a period when the Federal Reserve was pushing interest rates to post-World War II records in an effort to combat an entrenched inflation problem.
Building permits fell 8.1% to an annual rate of 1.068 million, the slowest pace since a 1.056 million unit rate set in March 1993. It was also the sharpest monthly drop since January 1995.
Many economists believe that the current slump in housing will rival the dive in the late 1970s and early 1980s when housing construction fell for four straight years before beginning to recover after the severe 1981-82 recession.
"The residential real estate market still appears to be in freefall," Cleveland Federal Reserve Bank President Sandra Pianalto said Thursday in remarks to the Association for Corporate Growth, her first comments on the economy in three months.
In other economic news, the Labor Department said the number of newly laid off workers filing applications for unemployment benefits dropped by 21,000 last week to 301,000. That marked the third consecutive weekly decline and occurred even though the government reported that the unemployment rate increased sharply in December.
Some economists believe the current housing troubles will push the country into another recession as consumers are staggered by the steep drop in housing - which has pushed home values down in many parts of the country. Consumers also have been faced with rising mortgage defaults and a severe credit crunch which has made loans harder to obtain.
Various recent reports have increased those worries including news that unemployment in December shot up to 5%, rising by the largest amount in one months since the country was reeling from the 2001 terrorist attacks. Many large financial institutions have announced billions of dollars of losses due to the meltdown in subprime mortgages.
The probability of a recession is growing and high oil prices pose a significant problem for the world's largest energy consumer, U.S. Energy Secretary Sam Bodman told reporters in Jordan on Thursday on the first leg of a trip to the Middle East.
A survey of builder sentiment prepared by the National Association of Home Builders came in at the second-lowest level on record in January at a reading of 19. That was up slightly from the record low of 18 set in December. The index has been below 20 since October as builders struggle to deal with slumping demand, rising housing defaults and tighter lending standards.
Many economists believe the housing sector will remain weak through this year before starting to stage a rebound in 2009.
Contributing: Associated Press
Copyright 2008 Reuters Limited.
http://www.usatoday.com/money/economy/housing/2008-01-17-housing-starts_N.htm?loc=interstitialskip
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