U.S. Housing Starts Dropped in July to 10-Year Low

Aug. 16 (Bloomberg) -- Builders in the U.S. started work on the fewest homes in a decade in July as the industry showed no sign of recovering from an 18-month recession.

The greater-than-forecast 6.1 percent decrease to an annual rate of 1.381 million followed a 1.47 million pace in June, the Commerce Department said today in Washington. Building permits also fell to a 10-year low.

Stock markets worldwide have tumbled on concern subprime mortgage defaults will bankrupt more lenders and destabilize the financial system. U.S. consumer spending, which makes up more than two-thirds of the economy, may weaken as falling real- estate prices and limits on borrowing prevent owners from tapping home equity, economists said.

``Even the most ambitious homebuilders will think twice about initiating new projects,'' said Lindsey Piegza, an analyst at FTN Financial in New York. ``Falling prices, sluggish demand, and dwindling mortgage credit availability will continue to weigh heavily on residential construction.''

Economists had forecast a decline in housing starts to a 1.4 million unit pace, from an originally reported 1.467 million in June, according to the median of 75 forecasts in a Bloomberg News survey. Estimates ranged from 1.35 million to 1.47 million. Construction was down 21 percent from July 2006.

Permits, a sign of future construction, decreased 2.8 percent to a 1.373 million annual pace, the lowest since October 1996. They were also forecast to drop to a 1.4 million rate, according to the survey median, with projections ranging from 1.375 million to 1.441 million.

Toll Brothers Inc., the largest U.S. luxury-home builder, said Aug. 8 that third-quarter revenue dropped 21 percent as the new credit restrictions reduced the pool of potential buyers.

``With the uncertainties roiling the mortgage markets right now, the pace of home sales could slow further until the credit markets settle down and sort themselves out,'' Robert Toll, chief executive officer of the Horsham, Pennsylvania-based company, said in a conference call with analysts. ``If the economy gets worse, I think that you could see a much lengthier downturn for housing.''