Single-family housing starts sink to 17-year low

Building permits drop 7.8%, biggest decline in 13 years

By Rex Nutting, MarketWatch

Last update: 9:42 a.m. EDT March 18, 2008

WASHINGTON (MarketWatch) -- With no end in sight to the housing bust, new construction on single-family homes dropped by 6.7% in February to a seasonally adjusted annual rate of 707,000, the lowest in 17 years, the Commerce Department reported Tuesday.

Starts of single-family homes have plunged 62% since the peak two years ago.

"The housing recession is intensifying," wrote Harm Bandholz, economist for UniCredit Markets.

Total housing starts, including multifamily units, dropped 0.6% in February to a seasonally adjusted annual rate of 1.065 million, better than the 990,000 pace expected by economists surveyed by MarketWatch. See Economic Calendar.

January's starts were revised higher to a 1.071 million pace from 1.012 million reported initially.

Building permits, a leading indicator of construction, fell 7.8% in February to a seasonally adjusted annual rate of 978,000, the lowest since the autumn of 1991. It was the biggest monthly decline in 13 years. Read the full report.

Permits for single-family homes dropped 6.2% in February to a 639,000 annual pace, a 17-year low. Single-family permits are down 65% from the peak.

The report confirms that home building remains extremely weak, with home prices falling and sales tumbling.

"It is clear that we have not yet reached the bottom, and still have a considerable way to go before that claim can be plausibly made," wrote Richard Moody, chief economist for Mission Residential.

The data are likely to have little impact on deliberations at the Federal Reserve later Tuesday. The Fed is expected to slash interest rates, perhaps by an unprecedented full percentage point. The Fed is intently focused on daily conditions in financial markets, and expects a very slow recovery for the housing market.

In a separate report, the Labor Department said producer prices rose 0.3% in February. Core prices, which exclude food and energy, rose 0.5%, more than expected. See full story.

In the past year, housing starts are down 28.4%. Single-family starts are down 40.5%. Building permits are down 36.5% in the past year, while single-family permits are down 41.9%, the biggest drop in 26 years.

The government cautions that its housing data are volatile and subject to large sampling and other statistical errors. In most months, the government can't be sure whether starts increased or decreased. In February, for instance, the standard error for starts was plus or minus 11.2%. Large revisions are common.

It can take four months for a new trend in housing starts to emerge from the data. In the past four months, housing starts have averaged 1.08 million annualized, down from 1.13 million in the four months ending in January.

On Monday, the National Association of Home Builders reported builder sentiment remained at extremely low levels in March, barely bouncing off a record-low set in December.

Details

Starts of multifamily units rose 14.5% in February, continuing a boom in apartment building. Multifamily starts are up 23% in the past year.

Regionally, starts fell 28% in the Northeast, were flat in the Midwest, rose 3.9% in the South and rose 5.1% in the West.

Housing completions fell 8.8% in February to a seasonally adjusted annual rate of 1.208 million, the lowest in 12 years. Home builders are trying to work off their excess inventories, but still have too many homes in the pipeline for the number of sales.

Rex Nutting is Washington bureau chief of MarketWatch.