Housing starts lowest since '95

Home builders began work on the fewest homes in 12 years in August, raising the risk the real estate woes will spread to other parts of the economy.

The Commerce Department said Wednesday that housing starts slid 2.6 percent, to an annual rate of 1.331 million. Building permits, a sign of future construction, dropped 5.9 percent, to a 1.307 million pace, also the slowest since 1995. Both figures came in below economists' estimates.

The housing slump could deepen after borrowing costs rose and lenders shut off access to credit, causing growth to slow even more, economists said.

On Tuesday, Federal Reserve policymakers lowered their benchmark interest rate by half a percentage point to prevent a broader economic slowdown.

"The housing market deteriorated significantly in August," said Brian Bethune, an economist at Global Insight Inc. in Lexington, Mass. "Housing activity will continue to be a significant drag on overall growth through 2008."

Construction of single-family homes plunged 7.1 percent in August, to a 988,000 rate, the slowest since March 1993.

Work on multifamily homes, such as townhouses and apartment buildings, jumped 13 percent, to an annual rate of 343,000.

The decrease in starts was led by a 38 percent plunge in the Northeast that was the biggest since 1990 and an 18 percent decline in the West. Construction increased 11 percent in the South and 4.2 percent in the Midwest.

The number of homes under construction fell 1.2 percent, to a 1.132 million pace. Housing completions decreased 0.2 percent, to an annual rate of 1.523 million. The number of properties authorized but not yet started skidded 0.9 percent, to 195,300.

Falling real-estate prices and subprime mortgage defaults will probably prolong the home-building recession, already the worst in 16 years.

As mortgages become harder to get, increasing foreclosures will throw more properties back on the market, economists said.