Number of homes under construction falls to record low in June By Rex Nutting, MarketWatch WASHINGTON (MarketWatch) - Ground-breaking on new housing units fell sharply after a federal tax credit for buyers expired, putting the housing sector back where it was a year ago, according to Commerce Department data released Tuesday. After a 15% drop in May, housing starts fell another 5% in June to a seasonally adjusted annual rate of 549,000 in June, the lowest level in eight months, the Commerce Department estimated. The drop was worse than the 3% decline to 575,000 expected by economists surveyed by MarketWatch. The estimate for starts in May was revised lower to 578,000 from 593,000 originally reported. See our complete economic calendar. Starts were down 5.8% compared with June 2009, and were down about 75% from the peak in 2006. The number of homes under construction fell to a record-low 450,000 at the end of June after builders rushed to complete homes in time for the June 30 deadline for the tax credit. Completions surged a record 26% in June to an annualized rate of 886,000. Read the full release on the Census Bureau website. Building permits, which are considered a forward indicator of housing construction, rose 2.1% on the month, due to a 20% gain in permits for multi-family units. Permits for single-family homes - considered by many to be the most vital number in Tuesday's release - fell 3.4% to a seasonally adjusted annual rate of 421,000, the lowest level since April 2009. Permits and starts had risen smartly earlier in the year, as builders rushed to meet the deadline for the federal home buyers' subsidy. To qualify for the credit, buyers had to sign a sales contract by April 30 and close the sale by June 30. Congress has now extended the deadline for closings to Sept. 30, but that extension had no impact on builders' plans. The tax credit helped revive sales and construction from the worst downturn since World War II. Starts in the first six months of 2010 were up 14% compared with the first six months of 2009. But with the credit expiring, builders face tough competition from foreclosures of existing homes, and buyers remain cautious about the job market. In some areas, prices are still falling, which could put further pressure on home owners' finances and on the banks and other lenders that hold their mortgages. Home builders remain very discouraged. The builder sentiment index fell back to a 15-month low in July after a large drop in June, according to a survey released on Monday. See our full story on the builders' index. 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 June, for instance, the standard error for starts was plus or minus 13.2%. Large revisions are common. The standard error for monthly building permits data is much lower at plus or minus 2.1%. It can take three months for a new trend in housing starts or permits to emerge from the data. In the past three months, housing starts have averaged 602,000 annualized, down from 630,000 in the three months ending in May. Building permits have averaged 590,000 over the past three months, down from 623,000. More details Starts of single-family homes fell 0.7% to a seasonally adjusted annual rate of 454,000, the lowest in 13 months. Starts of multi-family units dropped 22% to a 95,000 annual rate. Starts fell in all four regions, dropping 11% in the Northeast, 7% in the Midwest, 6% in the West and 2.4% in the South.

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