WASHINGTON (Reuters) - U.S. housing starts fell 3.7 percent in November, with construction of single-family homes sliding to the lowest level in more than 16 years as builders scrambled to cope with a deep drop in sales.
Home building projects started fell to an annual rate of 1.187 million units, the Commerce Department said on Tuesday in a report that was in line with expectations on Wall Street.
Starts on single-family homes tumbled 5.4 percent to an annual pace of 829,000 units, the lowest since April 1991. It was the eighth straight monthly drop in single-family starts.
In addition, permits for future building slipped 1.5 percent to their lowest level since June 1993.
Economists said the data underscored the degree to which the deep housing sector slump was weighing on the economy, which some analysts fear is teetering close to recession.
“The fourth quarter ... is going to have a substantial drag from the second leg down in construction, but the bright spot is that it’s unlikely that we’re going to see this rate of decline continue,” said Michael Darda, chief economist at MKM Partners in Greenwich, Connecticut.
Financial markets largely shrugged off the data, which simply underscored the problems in the U.S. housing sector that have led to a severe tightening of credit conditions globally. U.S. government bonds rose while shorter-dated paper edged down as traders focused on efforts by central banks to unfreeze credit markets. Stocks rose modestly.
Darda and other economists said the pullback in construction was needed for builders to work off a glut of unsold homes, a necessary step to the sector’s recovery.
“The direct drag of housing on the economy will greatly diminish in 2008, but the (financial) market is more concerned on its indirect impact,” said Richard DeKaser, chief economist at National City Corp in Cleveland, referring to the tightening of credit as U.S. mortgage defaults have risen.
A Reuters poll released on Tuesday showed analysts see an increasing risk of a U.S. recession. The survey of 88 analysts put the chances of a recession in the next 12 months at 40 percent, up from 35 percent in a November poll. (For details, please see <ECILT/US>)
The consensus view was that the economy would expand at a meager 0.9 percent pace in the fourth quarter, after moving ahead at a sprightly 4.9 percent clip in the third quarter. The economy was seen expanding a sluggish 2 percent in 2008.
The report on home construction showed single-family starts in both the Midwest and Northeast fell 20 percent. They dropped 6.8 percent in the West, but rose 5.4 percent in the South.
Over the past year, starts on both single and multiple-family units have plummeted 24.2 percent, while permits are down 24.6 percent.
Separate reports on chain store sales presented a mixed view on sales last week, but suggested holiday shopping was still subdued.
“Unfortunately, retailers were battered by several forces this past week, including storms and a procrastinating consumer,” said Michael Niemira, chief economist for the International Council of Shopping Centers.
A joint report from ICSC UBS Securities said chain store sales slowed to a 2.1 percent year-on-year gain last week from 2.3 percent a week earlier.
Separately, Redbook Research said the year-on-year gain slipped to 1.3 percent from 1.6 percent in the prior week, well off last year’s sales pace.
Reporting by Joanne Morrison; Editing by Andrea Ricci