Home Starts Decline for 7th Month

Housing starts fell 1.7% in August, the government said today, continuing a seven-month slide deeper into what many industry observers are calling a housing recession.

The Commerce Department said starts of new homes and apartments totaled a seasonally adjusted annual rate of 1.13 million units after falling 3.5% in July. The revised July decline was even worse than the 2.6% reported last month.

The August starts were the lowest since construction of 1.05 million units got under way at an annual rate in August, 1982, during the last general recession. The last seven-month decline occurred from May through November, 1981.

The housing industry has been in a decline for more than a year, with August’s 1.13 million annual rate down from the 1.38 million starts in 1989 and 1.49 million in 1988.

Many analysts had expected August starts to decline to the 1.13 million annual rate.

In advance of the report, economists at Mitsubishi Bank in New York wrote in their Weekly Economic Indicator Report that “housing activity is clearly depressed and is likely to continue to be for quite a while.”

“Tighter lending standards, regional weakness, general economic uncertainty and the RTC (Resolution Trust Corp.) housing auctions all are taking their toll on the housing industry,” they contended.

In addition, analysts point to slack new home sales, which fell 2.3% in July for their fifth drop in seven months. As a result, inventories inched up to a 7.8-month backlog from 7.7 months in June, easing further incentives to begin new projects.

The sluggishness in the construction industry cost 40,000 jobs in August, after seasonal adjustment, according to a Labor Department report earlier this month. The construction industry has lost nearly 100,000 jobs in the past three months alone.

And as a portent of things to come, applications for building permits fell 4.3% to an annual rate of 1.08 million. Permits often are a barometer of future housing activity.