Housing starts fall to January 1991 level

Housing starts fell 11 percent in July from June to their lowest level since January 1991 as builders tried to rein in construction to reduce inventory.

The Commerce Department reported yesterday that starts were 29.6 percent lower than July 2007, while building permits dropped 17.7 percent month-over-month and 32.4 percent year-over-year.

Permits for single-family homes fell 5.2 percent month-over-month and 41.4 percent from July 2007.

Both housing-industry officials and economists found something positive in the lower numbers, which had been inflated the previous month by developers of multifamily dwellings trying to beat the July 1 launch of a new, stricter building code in New York.

Sandy Dunn, president of the National Association of Home Builders in Washington, said the action that builders were taking to keep a lid on production would help bring supply and demand back in balance.

Global Insight Inc. housing economist Patrick Newport said from Lexington, Mass., that the key statistics were the single-family permit numbers, "since these estimates have a small margin of error, are leading indicators of future housing activity, and are not influenced by weather nearly as much as starts.

July's numbers point to further drops in single-family starts over the next two to three months, "but they also hint at a possible rebound late this year," he said.

Mark Zandi, chief economist with Moody's Economy. com, of West Chester, said the housing collapse pushed the nation into a recession at the end of 2007.

"Starts will continue to fall through the end of the year, likely hitting a 50-year low," said Zandi, an economic adviser to the presumptive Republican presidential candidate John McCain.

"The good news is that the lower construction will soon cut into the mountain of inventory weighing on the housing market," he said.

Regionally, the Northeast saw the biggest monthly drop in overall permits - 63.4 percent - caused mainly by New York City's June burst. However, it had the largest increase in single-family starts month to month (11.3 percent) and the smallest annual decline (26.6 percent).

"The real issue is not what the one-month low will be, but when will activity simply stabilize," said Joel L. Naroff, chief economist at Commerce Bancorp Inc.