October Housing Starts Plummet as Home Mortgage Demand Weakens

In a twist on the Field of Dreams mantra developers across the country held back last month, figuring: If they don’t come, we can’t build it.

“They,” of course, would be referring to applicants for fixed or adjustable rate mortgages. Therefore, the pace of U.S. home building fell sharply in October government data showed on Friday.

New home starts dropped 14.6 percent to their lowest level in more than six years last month and building permits fell 6.3 percent, according to the Commerce Department.

A healthy housing sector had been key to recent economic expansion, but growth has slowed sharply after a robust start to the year. Homebuilding activity has dropped and auto-makers have cut back on production as the economy moved ahead at just a 1.6 percent annual rate in the third quarter.

Many economists had thought the worst of the housing slump had already passed - and data released earlier this week seemed to support that idea - but Friday’s data cast doubt on that view.

“The raw number (housing starts) looks incredibly weak,” said Robert McIntosh, chief economist with Eaton Vance Management of Boston.

The Commerce Department said October housing starts came in at an annual pace of 1.486 million units, compared with a pace of 1.74 million units in September. Economists had forecast October housing starts to fall to 1.690 million units from September’s originally reported pace of 1.772 million.

Compared to a year earlier, October starts from home builders were down 27.4 percent from the October 2005 pace of 2.046 million units.

Permits for future groundbreaking, an indicator of builder confidence, fell 6.3 percent to an annual pace of 1.535 million units, the lowest rate since December 1997, from a 1.638 million pace in September.

Economists had expected the Commerce Department to report October permits at a 1.625 million pace. Also, permit applications were down 28 percent from October 2005 because home purchase loan buyers continue to wait on the side until prices tumble further.