Home construction plunged last month to the lowest level since October as the economy remained weak and demand for housing plummeted.
But driving the June decline was a more than 20 percent drop in condominium and apartment construction, which makes up a small but volatile portion of the housing market. Construction of single-family homes, the largest part of the market, was down slightly. It dropped 0.7 percent.
Overall, construction of new homes and apartments in June fell 5 percent from a month earlier to a seasonally adjusted annual rate of 549,000, the Commerce Department said Tuesday. May's figure was revised downward to 578,000.
One bright area of the report was an increase in building permit applications, which are a sign of future activity. They rose 2.1 percent from a month earlier to an annual rate of 586,000, however this was also driven by apartment construction.
A slumping job market and competition from foreclosed properties have forced builders to limit construction, especially after tax credits that spurred sales expired at the end of April.
"The housing market remains the Achilles heel of the recovery," said M. Cary Leahey, a senior economist at Decision Economics. "It is hard to imagine confidence recovering to healthy levels until the housing market experiences much less distress."
The lackluster housing report contributed to an early sell-off on Wall Street. The Dow Jones industrial average fell 120 points in morning trading.
In a typical economic recovery, the construction sector provides much of the fuel. Not this time. While developers have cut back on construction and the number of new homes on the market has fallen dramatically, they still must compete against foreclosed homes selling at deep discounts.
Builders may be turning their attention away from new projects to complete those already in progress. Housing completions rose 26.2 percent in June, noted John Ryding and Conrad DeQuadros, economists at RDQ Economics. That could be a positive sign for future activity.
"Our best guess is that housing construction activity continues to bottom out at low levels and that we will see some very modest growth in the second half of the year in new housing construction," they said in a note to clients.
Still, builders have been feeling increasingly pessimistic of late. The National Association of Home Builders said Monday that its monthly reading of builders' sentiment about the housing market sank to 14 — the lowest level since March 2009. Readings below 50 indicate negative sentiment about the market.
Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes paid to local and federal authorities, according to the builders' trade group. The impact appears in multiple industries, from makers of faucets and kitchen appliances to lumber yards.
The rate of home building is still up about 15 percent from the bottom in April 2009, though it's down 76 percent from the last decade's peak in January 2006.
New home sales in May dropped 33 percent to the slowest pace in the 47 years records have been kept. The drop-off came immediately after the tax incentives to sign a contract on a home ended on April 30.