WASHINGTON — Construction of new homes and applications for future projects both plunged to record lows in January as all parts of the country showed big declines in building activity.
The Obama administration, seeking to combat the most serious housing downturn in generations, today unveiled an effort to deal with mortgage foreclosures to go along with housing support included in the $787 billion economic stimulus program. But analysts said they still do not expect a turnaround in housing until late this year at the earliest.
The administration’s new foreclosure relief plan will spend $75 billion in an effort to prevent up to 9 million Americans from losing their homes. The plan also will double the size of the lifeline the government is providing Fannie Mae and Freddie Mac to $200 billion each as a way of reassuring financial markets of the viability of both mortgage finance giants.
The Commerce Department reported today that construction of new homes and apartments dropped 16.8 percent last month to a seasonally adjusted annual rate of 466,000 units. That’s well below the 530,000 units economists expected, and was the slowest pace on records dating back a half-century.
Applications for building permits, considered a good barometer of future activity, also dropped to a record low, falling 4.8 percent to a rate of 521,000 units, slightly below economists’ expectations.
“Conditions in the market for new homes have not been this bad since the 1930s and they continue to worsen,” said Patrick Newport, an economist at IHS Global Insight in Lexington, Mass., who predicted that housing starts would remain depressed for months to come.
Builders are slashing home construction as skyrocketing home foreclosures dump more empty properties on an already glutted market. The reduction in new projects should aid the housing market in the long run as fewer properties for sale help increase competition and stabilize prices for those left on the market.
David Crowe, chief economist for the National Association of Home Builders, said the administration’s foreclosure program plus help for first-time home buyers included in the stimulus measure would have an impact, but the new programs will take time to become operational. For that reason, he also expects housing construction will continue to decline in the months ahead.
“I do think we will see a bottom in 2009 and by the end of this year we will start to see the beginning of a recovery. But it will be a slow recovery because of the significant overhang of empty houses for sale,” Crowe said.
The home builders’ group reported Tuesday that its housing market stood at nine this month, just one point off the all-time low.
The housing industry is in the grips of the worst slump in the post-World War II period. Troubles in housing have pushed the country into a recession and also triggered the worst financial crisis in seven decades as banks struggle to cope with billions of dollars of losses in mortgages and other types of loans.
More than 2 million American homeowners faced foreclosure proceedings last year, and that number could soar as high as 10 million in the coming years depending on the severity of the recession, according to a report last month by Credit Suisse.
The new housing report showed weak housing activity nationwide in January. Construction dropped 42.9 percent in the Northeast to a record low of 36,000 units at an annual rate. Building fell 29.3 percent in the Midwest to a record low of 53,000 units, while it dropped 12.8 percent in the South to a new record low of 246,000 units.
Construction activity fell 6.4 percent in the West to an annual rate of 131,000 units, the slowest pace since October 1966.
For all of last year, the number of housing units builders broke ground on totaled 906,200, also a record low. That was down from 1.36 million housing units started in 2007. The previous low was set in 1991.
Tighter lending standards, rising defaults and fear about the housing market’s future have sidelined buyers, an absence felt acutely by homebuilders such as D.R. Horton Inc., Pulte Homes Inc. and Centex Corp.
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