By Rex Nutting, MarketWatch WASHINGTON (MarketWatch) - U.S. home builders reduced their starts of new homes by 4.5% in October, driving new construction to the lowest level since just after World War II, the Commerce Department estimated Wednesday. Housing starts dropped to a seasonally adjusted annual rate of 791,000 in October, the slowest pace since similar records were first kept during the housing boom in the late 1940s. Housing starts have now fallen 38% in the past year and are down about 70% from the peak in early 2006. Building permits, which are typically less volatile than the starts data, fell 12% to a record-low seasonally adjusted annual rate of 708,000 in October, down 40% in the past year. The decrease in housing starts was roughly in line with expectations of economists surveyed by MarketWatch, who expected a decline to a 776,000 annual rate. Starts in September were revised higher to 828,000 from 817,000. Builders are frantically cutting back their production of new homes, trying to work off a mammoth glut of unsold inventory. The more builders cut production, the sooner the market can recover. The number of housing units under construction dropped 2.2% to 892,000, while the number of single-family homes under construction fell 3.7% to a 25-year low of 441,000. The number of units completed fell 10% to a 1.04 million annual rate. The report shows new construction has been battered again by the credit squeeze in capital markets, which have dried up financing just as the economic downturn accelerated and pushed demand lower. Rising numbers of foreclosures of existing homes are competing against new construction for the few buyers remaining. The mood of home builders' has rarely been worse. The National Association of Home Builders reported Tuesday that its sentiment index fell to a record-low 9 in November. 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 October, for instance, the standard error for starts was plus or minus 16%. 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 856,000 annualized, down from 930,000 in the four months ending in September. In all of 2007, 1.355 million homes were started.

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