Builders broke ground on the fewest homes on record in April as work on multifamily units plunged, a sign that sales and home prices may have farther to fall before the housing market reaches a bottom. The 13 percent decrease to an annual rate of 458,000 was led by a 46 percent decline in multifamily starts and followed a 525,000 pace the prior month, the Commerce Department said today in Washington. Building permits, a sign of future construction, fell 3.3 percent to a record low pace of 494,000. Record foreclosures and slumping sales are keeping inventories at inflated levels, prompting builders to hold off on new projects. While an easing in the housing slump is viewed as essential to an economic recovery later this year, a sustained turnaround will take time because unemployment is at a 25-year high and builders face tight credit conditions. ``Weakness in housing continues,'' Maxwell Clarke, chief U.S. economist at IDEAglobal Inc. in New York, said before the report. ``Declining prospects for developers should continue to act as a drag on investment and overall output in 2009.'' Starts were projected to increase to a 520,000 annual pace from a 510,000 previously estimated pace the prior month, according to the median forecast of 74 economists surveyed by Bloomberg News. Estimates ranged from 465,000 to 564,000. Permits were forecast to rise to a 530,000 annual rate, according to the survey median. Construction of single-family homes rose 2.8 percent to a 368,000 rate, today's report showed, the second straight monthly gain. Work on multifamily homes, such as townhouses and apartment buildings, plummeted to an annual rate of 90,000 from 167,000 the month before. Regional Drops The decrease in starts was led by a 31 percent decline in the Northeast and drops of 21 percent in the South and the Midwest. Starts in the West rose 43 percent. Home starts have plunged from a peak annual rate of 2.27 million in January 2006, which capped the biggest housing boom in six decades. Falling construction has weighed on economic growth and plunging home prices helped ignite the global credit crisis that exacerbated the economic slump. Still, housing data in recent weeks have shown signs of stabilization. Sales of existing homes, which in January reached the lowest since records began in 1990, have held within a narrow range centered on a 4.6 million annual rate for five months. Sales of new houses, while more than 70 percent below their 2005 peaks, have bounced from a record low set in January. Confidence among U.S. homebuilders in May increased to the highest level since September, capping the first back-to-back gain since February 2008, the National Association of Home Builders/Wells Fargo index showed yesterday. A reading below 50 means most respondents view conditions as poor. Resale Market Foreclosure-driven declines in prices have helped the resale market settle. Distressed properties have made up as much as 50 percent of existing-home purchases in recent months, according to the National Association of Realtors. The biggest contraction in residential construction on record helped builders trim their excess supply even as sales faltered. The number of unsold new houses dropped in March to the lowest level since 2002, according to Commerce figures. Still, construction companies are feeling the pain of having to slash prices to spur demand. D.R. Horton Inc., the largest U.S. homebuilder by market value, on May 5 reported a quarterly loss that exceeded analysts' estimates as orders plummeted 45 percent from a year earlier. `Challenging' Conditions ``Market conditions in the homebuilding industry are still challenging, characterized by rising foreclosures, high inventory levels of both new and existing homes, increasing unemployment, tight credit for homebuyers and eroding consumer confidence,'' Chairman Donald Horton said in a statement.

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