Home building sees second largest decline ever

Published 11:05 pm Thursday, January 17, 2008

WASHINGTON — The steep slump in housing throughout much of the country intensified at the end of last year, pushing home construction down by the biggest amount in nearly three decades.

Analysts forecast more bad news in the months ahead with the lingering question of whether the housing slump will be severe enough to push the country into a recession.

The Commerce Department reported Thursday that construction was started on 1.353 million new homes and apartments last year, down 24.8 percent from 2006. It was the second biggest annual decline on record, exceeded only by a 26 percent plunge in 1980.

The year ended on a weak note with construction dropping by 14.2 percent in December and applications for new building permits, a good indicator of future activity, falling for a seventh consecutive month, indicating that activity will be weak at least through the spring of this year.

The Seattle housing market has lagged a bit, but remains among the strongest in the nation.

Economists said the slump has already surpassed the 1990 downturn and will likely rival, if not surpass, the prolonged housing downturn in the late 1970s and early 1980s, a period when the Federal Reserve was pushing interest rates to the highest levels since the Civil War in a successful effort to halt a decade-long bout of high inflation.

Mark Zandi, chief economist at Moody’s Economy.com, is forecasting that median sales prices for existing homes will fall by 2.5 percent for all of 2007, which would be the first annual price decline on records that go back four decades.

“I think this housing downturn will be unprecedented in terms of its breadth across the country and in its severity,” Zandi said. “I don’t think we have seen anything like this, certainly since the Great Depression, and back then housing was much less of a factor in terms of the overall economy because fewer people owned their own homes.”

In Snohomish County, the median sales price increased for the first 10 months of the year, then decreased very slightly in November and December.

The troubles in housing and other areas of the economy are expected to push overall economic growth to 1 percent or less, meaning the economy will be very near the stall level of a recession.

Growing fears of a recession helped to push stock prices sharply lower again Thursday. The Dow Jones industrial average fell by 306.95 points to close at 12,159.21, its lowest close since last March. The Dow’s frequent triple-digit declines since the start of the year mean that the index has now given back all of its 2007 gains.

Various recent reports have increased recession worries and spurred President Bush and members of Congress into talks about offering an economic stimulus either to prevent a downturn or at least make it less painful and prolonged. Federal Reserve Chairman Ben Bernanke spoke out in favor of a stimulus package in congressional testimony Thursday.

The drop in construction in December was bigger than economists had been expecting and reflected weakness in all parts of the country. Housing construction fell by 30.8 percent in the Midwest and was down 25.8 percent in the Northeast and 19.6 percent in the West. The decline in the South was a smaller 3.3 percent.

Economists said the weakness showed that the housing correction was getting worse since the turmoil in financial markets hit in August.