Building permits drop 8% to a 27-year low, government data show By Rex Nutting, MarketWatch WASHINGTON (MarketWatch) - Construction of new homes dwindled to a 17-year low in September as home builders sought to reduce the number of unsold homes in an elusive quest to find the bottom of the historic housing collapse. Housing starts fell 6.3% in September to a seasonally adjusted annual rate of 817,000, the lowest since January 1991, the Commerce Department estimated Friday. Starts of single-family homes tumbled 12% to 544,000, the lowest since February 1982. Housing starts were also revised lower in July and August. Starts in August were revised down to 872,000 from 895,000. The September estimates were much worse than the 3% decline to an annual rate of 870,000 that was expected by economists surveyed by MarketWatch. Building permits, which are less volatile than the starts data, fell 8.3% to 786,000, a 27-year low. Permits for single-family houses fell 3.8% to 532,000, the lowest in 26 years. Few economists expect to see a quick end to the housing recession. "We continue to believe that new homebuilding will decline another 15% over the course of the next year," said Morgan Stanley economist David Greenlaw ahead of the report. Builders are frantically cutting back their production of new homes, trying to work off a mammoth glut of unsold inventory. Record foreclosures on existing homes are complicating the builders' efforts to bring supply back down to meet sluggish demand. The more builders cut production, the sooner the market can recover. Buyers are being discouraged by falling prices and by turmoil in the mortgage finance market that makes getting a loan difficult. Housing starts were off 31% in the past year and were down more than 60% from the peak in early 2006. In the past year, permits for single-family homes have dropped 39%, single-family starts have fallen 42%, and single-family completions have sunk 27%. Starts of single-family houses dropped to the lowest level in at least 20 years in three of the four regions. Completions of new homes surged nearly 12% in September to an annual rate of 1.097 million. The number of homes under construction fell 2.7% to an annual rate of 918,000, far above the recent sales trend. The mood of home builders' has rarely been worse. The National Association of Home Builders reported Thursday that its sentiment index fell to a record-low 14 in October as a new wave of the credit squeeze hit potential home buyers. Builders were particularly gloomy about future sales. See full story. The government cautions that its monthly housing data are volatile and subject to large sampling and other statistical errors. In most months, the government can't be sure whether starts increased or decreased. In September, for instance, the standard error for starts was plus or minus 12%. Large revisions are common. It can take four months for a new trend in housing starts to emerge from the data. In the past four months, housing starts have averaged 932,000 annualized, down from 973,000 in the four months ending in August. In all of 2007, 1.355 million homes were started.

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