Housing Starts Decline 5.2% to 7-Year Low

New home construction fell by a surprising 5.2% in September to the lowest level since the depths of the 1982 recession, the Commerce Department said Wednesday, heightening concern about the health of the economy.

The seasonally adjusted September drop left housing starts at an annual rate of 1.26 million units, the lowest since the October, 1982, rate of 1.17 million units.

“Frankly, I think it’s scary. The number gave me a bit of a chill when I saw it,” said economist Dave Seiders of the National Assn. of Home Builders.

The department also increased its estimate of August’s decline to show a 6.2% drop instead of the previously reported 5% decline.

“Home building is getting down to recessionary levels,” said economist Richard Peach of the Mortgage Bankers Assn. “But we remain confident that later this year and in 1990, we will see a modest recovery.”

The weak housing starts figure, a barometer of residential building in the United States, was the second piece of poor economic data this week. The government reported Tuesday that the nation’s trade deficit rose by 31% to $10.8 billion in August to a peak for the year.

Economists are now beginning to question the health of the current expansion, since industrial production has declined, construction has weakened and factory unemployment has risen, while exports have stalled.

“Housing has traditionally been a part a leading indicator for the economy, weakening before the rest of the economy,” Seiders said.

“I think the Fed (Federal Reserve) now has room to ease interest rates,” he added.

The September decline left housing starts far below expectations by Wall Street economists, who projected a 2.2% rise to 1.38 million units.

In a disturbing sign for future construction, building permits issued in September also fell by 2.4% in September, reversing a 3.7% August gain.

Housing starts have been weak since last spring because of high interest rates, but they showed signs of strength in June and July. The summer gains then dwindled in August, and the decline accelerated in September.

Long-term mortgage rates are now about 9.95%, compared to a high of 10.22% at the beginning of September, and that has spurred some home buyers to enter the real estate market. But interest rates have not fallen enough to renew building activity.