Construction of new homes fell in October, fresh evidence that the housing industry remains under duress.
Construction of new homes and apartments sank 11.7 percent last month to a seasonally adjusted annual rate of 519,000 units, the Commerce Department said Wednesday. But that was mainly because apartment construction, which represents less than 20 percent of the housing market, fell by more than 40 percent. The much larger single-family home category fell 1.1 percent.
The overall drop marked the poorest showing since April 2009, when construction dropped to 477,000 units – the lowest level on records dating back to 1959. Construction of new homes and apartments is 77 percent below its peak during the housing boom of 2.27 million units in January 2006.
The weakness last month reflected a small decline in construction of single-family homes and big decrease in construction of apartments and other multifamily units.
Separately, the Labor Department said inflation was essentially tame last month. A steep rise in gasoline prices drove the consumer price index up 0.2 percent in October, the fourth straight monthly increase. But excluding volatile food and energy costs, core consumer prices were unchanged for the third straight month. In the past year, the core index has risen only 0.6 percent, the smallest increase since the index began in 1957.
The weak housing market has been a major drag on the broader economy, which is struggling to add enough jobs to lower the 9.6 percent unemployment rate. A huge backlog of foreclosed properties has lowered home prices and made it difficult for builders to compete.
Each new home built creates, on average, the equivalent of three jobs for a year and generate about $90,000 in taxes, according to the National Association of Home Builders.
Applications for building permits, a strong indicator of future construction, rose 0.5 percent in October to an annual rate of 550,000 units. However, this small increase recouped only a part of a 4.2 percent decline in September.
High unemployment, slow job growth and tight credit have kept people from buying homes. Sales of new homes hit the lowest level in more than a decade this summer after a federal homebuyer tax credit expired in April.
While much of the weakness in October came from the big plunge in apartment construction, analysts said construction activity is likely to remain depressed for years to come.
Alistair Bentley, an economist at TD Economics, said in a research note that housing construction should resume an upward trend as labor markets slowly improve but housing activity is likely to remain well below a healthy pace for several years.
Many analysts say an annual construction rate of 1 million new homes is consistent with healthy housing markets.
By region of the country, housing construction fell the most last month in the West. It dropped 30.5 percent there. Construction fell 13.4 percent in the South. It rose 12.9 percent in the Northeast and 1 percent in the Midwest.
The National Association of Home Builders reported Tuesday that its monthly index of builders’ sentiment remained in the doldrums with a reading of 16 in November, up only slightly from an October reading of 15.
Index levels below 50 are seen as reflecting a negative outlook for housing on the part of the builders. The last time the index was above 50 was in April 2006.