Housing starts hit lowest level in 18 months

NEW YORK (CNNMoney.com) -- New home construction fell to an 18-month low in October, the government said Wednesday.

Housing starts, or the number of new homes being built, fell 11.7% to a seasonally adjusted annual rate of 519,000 in October, down from a revised 588,000 in September, the Commerce Department said. The annual rate is the lowest since the 477,000 starts reported for April 2009.

Economists were expecting a rate of 600,000 housing starts, according to a consensus estimate from Briefing.com.

Economists were not expecting a strong report, because the number of new building permits has been weak for months, according to Sam Bullard, senior economist at Wells Fargo.

"We were expecting a pullback," Bullard said. "The surprise was that it came down as much as it did."

Housing starts have fluctuated between high 400,000s and high 600,000s since late 2008, but that range is a sharp decline from historical averages, and a marked drop from rates that hit in excess of 2,000,000 at the peak of the housing boom.

"Right now there is little demand for any kind of new construction," Bullard said. "And you have to factor in this time of year as well. This is not prime time for the housing market."

October's rate of 519,000 is the third lowest recorded since Jan. 1959.

"We are right back in the bottom of the trough in terms of housebuilding," said Robert Dye, senior economist for The PNC Financial Services Group.

Much of the weakness stems from lower numbers in the multi-family home construction, he added.

Permits for future construction rose to a seasonally adjusted annual rate of 550,000 last month, 0.5% above the revised rate of 547,000 in September, but fell short of expectations.

While the rate did increase, economists were expecting 570,000 permits in October.

If one positive can be taken from the report, it is the slight increase in permits, Bullard said.