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Housing Starts Hit 14-Year Low

Builders continue to scale back on construction amid an oversupply of inventory.

Updated from 9:52 a.m. EDT

Housing starts fell to their lowest level in 14 years in September, while new permits hit a 15-year low, a sign that builders are cutting back on development because of the oversupply of homes plaguing the U.S. housing market.

New housing starts totaled an annual rate of 1.12 million units in September, down 10% from the revised August level of 1.33 million, the Census Bureau said Wednesday. On a year-over-year basis, starts plunged 31%.

The figures were below economists' expectation of 1.29 million units, according to estimates from Reuters.

New permits in September fell 7.3% from the prior month and 26% from a year earlier to an annual rate of 1.23 million units. Economists expected a rate of 1.3 million units.

Permits for single-family homes fell 7.1% in September from August.

"Starts have declined at almost a 40% annual rate over the last three months, as the problems in credit markets gave the housing market another leg downward," said Wachovia economic analyst Adam York in a research note. "We think new construction will continue to decline into 2008."

Housing analysts continue to say that a reduction in overall home inventories is a necessary precursor to any recovery in housing prices, which are

falling in nearly half of U.S. markets.

While a slowdown in starts may begin to correct the supply and demand imbalance in housing, some economists worry about the ramifications for the broader economy.

"We're approaching what we would call recession territory," says Kurt Karl, chief U.S. economist for Swiss Re.

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Housing starts are "heading south with a vengeance," he says. "Normally a quarter with one million starts, you're in recession."

Even though housing represents only 5% of the U.S. economy's total output in goods and services, a lot of extra purchases -- such as landscaping, new cars and renovations -- are tied to housing sales, Karl points out. Therefore, housing "has a bigger magnitude" than the 5% figure, he says.

Homebuilder stocks were mostly lower Wednesday.

KB Home

(KBH) - Get Report

was down 55 cents, or 2.1%, to $25.99;

Toll Brothers

(TOL) - Get Report

lost 20 cents, or 0.9%, to $21.18; and



fell 15 cents, or 0.6%, to $25.45.