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Real Estate

Single family home starts at 16-year low

Builders move to cut back supply of new homes due to glut on market, although apartment growth lifts housing starts.

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By Chris Isidore, CNNMoney.com senior writer

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NEW  YORK (CNNMoney.com) -- The collapse in home building continued in October as single-family home starts fell to a 16-year low and permits for all types of new homes dropped to levels not seen since 1993, according to the government's latest reading on the state of the battered home building market released Tuesday.

While overall housing starts edged up to an annual rate of 1.23 million from 1.19 million in September, topping forecasts, that was due to a blip of sorts, a 46 percent spike in the more volatile starts in buildings with five or more housing units.

By comparison, the start of single family homes fell 7.3 percent to an annual rate of 884,000, the lowest level since October 1991. While there were month-to-month gains in single family starts in the Northeast and Midwest, the South, which accounts for nearly half of all new home sales, saw starts fall nearly 20 percent from September; they are now down 31 percent from year-earlier levels.

"The large declines in single-family starts and permits clearly show that this component of the housing market still is weakening seriously," said David Seiders, chief economist for the National Association of Home Builders (NAHB).

Permits, a less weather-impacted measure of building strength that is used to gauge builders' confidence in the market, fell 6.6 percent to an annual pace of 1.18 million from 1.26 million in September. That fell short of a 1.2 million rate economists surveyed by Briefing.com had forecast. Permits for single family homes fell 8 percent from October.

"It's unreasonable for builders to build with gusto when they're staring at an 11-month supply of houses on the market," said Mike Schenk, senior economist, Credit Union National Association. "If you like bad news and gloom and doom, keep reading these reports."

A cutback in the pace of home building in recent months has been a drag on the nation's overall economy. But it is seen as a necessary step to work through a record glut of completed new homes available for sale on the market.

"Builders continue to do what they absolutely have to do in this market downturn," said Brian Catalde, NAHB president and a home builder from El Segundo, Calif. "They are repositioning themselves for the market's eventual recovery by cutting back on production and working down their inventories."

The report comes a day after the NAHB's survey of members' confidencematched a record low level. And it follows a report earlier Tuesday that D.R. Horton, the nation's No. 3 home builder by revenue, reported a loss in its most recent quarter on a 35 percent drop in sales.

Of the nation's largest home builders, only luxury home builder Toll Brothers (Charts, Fortune 500), No. 6 in terms of revenue, has yet to report a quarterly loss in the current downturn - and analysts are forecasting a loss for its just completed period after preliminary results showed a sharp drop in the number of homes sold and an even steeper decline in prices.

The five larger builders all reported much larger-than-forecast losses in their most recent financial periods. Earlier this month Hovnanian Enterprises (Charts, Fortune 500), the nation's No. 7 builder by revenue, reported that the sales pace during October "significantly deteriorated" compared with recent months in most of its markets, and its preliminary results also showed a sharp rise in cancellations.

In October, credit rating agency Moody's downgraded the debt of No. 1 home builder Lennar (Charts, Fortune 500), No. 2 Centex (Charts, Fortune 500) and No. 4 Pulte Homes (Charts, Fortune 500) to junk bond status.  To top of page

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