Housing starts plunge 11 percent in October

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By David M. Dickson

Housing starts in October plummeted to their lowest level in six months as builders pulled back, worried that Congress might not extend the home-buyer tax credit scheduled to expire at the end of November.

After rising during four of the previous five months, housing starts plunged 11 percent in October, the Commerce Department reported Wednesday. The unexpectedly steep decline reflects the extent to which home-building has recently been relying on government stimulus efforts.

Last month, Congress passed and President Obama signed legislation extending the first-time home-buyer tax credit of up to $8,000 through April 30. The legislation also expanded the tax credit to include some current homeowners who buy new or existing homes.

Builders broke ground last month on 529,000 housing units, measured at an annual rate. It was the lowest number since April, when 479,000 single-family units were started. October housing starts were 31 percent below year-earlier levels. Ground-breaking, which was down in all four regions of the country, plummeted by 19 percent in the Northeast.

Building permits across the country declined 4 percent in October, reaching their lowest level since May.

Single-family-home starts were down 7 percent last month. Housing starts for multifamily units, such as condominiums and apartment buildings, collapsed 35 percent last month, plunging to an annual rate of 53,000 units, the lowest number since record-keeping began 50 years ago.

The report was "a shocker," said Patrick Newport, U.S. economist for IHS Global Insight. "The recent flattening in single-family starts [and] permits is payback for the first-time home-buyer tax credit passed in February, which shifted housing starts and permits from 2010 and late 2009 into the first seven months of 2009," Mr. Newport said.

"Outside the earlier bump in demand due to the tax credit, demand for new homes remains exceptionally weak," said Mark Vitner, senior economist at Wells Fargo. "Builder confidence remains near its all-time lows and few firms note any improvement in traffic."

In a positive development, the Labor Department reported that consumer prices increased 0.3 percent in October. The rise reflected a 1.5 percent jump in energy prices, which have since moderated, and quirky increases in the prices of new and used cars resulting from the now-expired federal "cash for clunkers" program. Excluding the volatile energy and food sectors, the so-called core consumer price index increased just 0.2 percent last month.

Over the past 12 months, consumer prices have actually declined 0.2 percent, reflecting mostly the rapid descent of oil prices last fall. Inflation remains subdued for now and will likely remain so "for some time," Federal Reserve Chairman Ben S. Bernanke said Monday. But he warned that "we might be in for a so-called 'jobless recovery,' in which output is growing, but employment fails to increase."

The disappointing housing report followed the Federal Reserve's Tuesday report revealing that industrial production increased just 0.1 percent in October after robustly rising in July, August and September. Earlier this month, the Labor Department reported that the unemployment rate jumped to 10.2 percent, its highest level in more than 25 years.

"Recent weak readings on October housing starts and industrial production suggest that a sustained recovery is by no means secured," said Brian Bethune, chief U.S. financial economist of IHS Global Insight. "The Fed will have to keep the pedal to the metal for some time."