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New home construction falls to a record low

New-home construction plunged to an all-time low in December, capping the worst year for builders on records dating back to 1959.
/ Source: The Associated Press

New-home construction plunged to an all-time low in December, capping the worst year for builders on records dating back to 1959.

The Commerce Department reported Thursday that construction of new homes and apartments fell 15.5 percent to an annual rate of 550,000 units last month. That shattered the previous low set in November.

It was a much weaker showing than the pace of 610,000 that economists were forecasting and ended 2008 on a dismal note.

For all of last year, the number of housing units that builders broke ground on totaled just over 904,000, also a record low. That marked a huge 33.3 percent drop from the 1.355 million housing units started in 2007. The previous low was set in 1991.

The report also showed that applications for building permits — considered a reliable sign of future activity — sank to a rate of 549,000 in December, a 10.7 percent drop from the previous month.

The collapse of the once high-flying housing market has been devastating to the United States' economic health.

Its spreading fallout has contributed to big pullbacks by consumers and businesses alike, plunging the economy into a painful recession now in its second year.

The Obama administration wants to ramp up efforts to stem skyrocketing home foreclosures, which have dumped even more properties on an already crippled market.

The Federal Reserve has taken a number of extraordinary steps with the hope of providing some relief. It is buying certain types of mortgages and has slashed a key interest rate to a record low of between zero and 0.25 percent.

Against that backdrop, mortgage rates have dropped to the lowest level in decades in recent weeks, although rates on 30-year mortgages rose above 5 percent this week, Freddie Mac reported Thursday. Average rates on 30-year fixed mortgages rose to 5.12 percent this week from 4.96 percent last week, which was the lowest since Freddie Mac started its survey in April 1971.

But that's provided little comfort to builders.

They are skeptical about the prospects of a housing turnaround. Unemployment is now at a 16-year high of 7.2 percent and is expected to march upward this year — a situation that can put stresses on existing home owners and can make it less likely that new buyers will stream into the market.

In fact, a key gauge of homebuilders' confidence has sank to a record low.

The National Association of Home Builders/Wells Fargo housing market index, released Wednesday, dropped one point to a record 8 in January. The index was at 9 for the previous two months. Index readings higher than 50 indicate positive sentiment about the market. But the index has been below 50 since May 2006, and below 20 since April.

Tighter lending standards, rising defaults and fear about the housing market's future have sidelined buyers, an absence felt acutely by homebuilders such as D.R. Horton Inc., Pulte Homes Inc. and Centex Corp.