Housing Starts Drop In Midwest

Construction of new homes and apartments fell to the weakest pace in 17 years in August, which was far more than expected. Housing construction dropped a surprising 6.2 percent last month, the Commerce Department reported Wednesday, far larger than the 1.6 percent decline analysts had been expecting.

It was the slowest building pace since January 1991, but the housing industry hopes that it will help clear out bloated inventories of unsold homes. Building activity is on track to slide below the 1 million-mark for the whole year, the first time that has happened in more than six decades. Supporting the view that construction will fall further, building permits, considered a good indicator of future activity, dropped 8.9 percent in August to an annual rate of 854,000 units.

Builders surveyed this month said they expected business conditions to improve slightly over the next six months, the National Association of Home Builders reported Tuesday. Builders are also optimistic that the new tax credit for first-time home buyers — included in the recently passed housing bill — will help bolster sales.

The two-year long housing downturn has pushed the country close to a recession, sent mortgage foreclosures to record highs and is now leveling some of the biggest names in finance because of soaring losses on their mortgage investments. In the past 10 days, the government has seized control of Fannie and Freddie and late Tuesday night the Federal Reserve announced it was providing an $85 billion emergency loan to the country's largest insurance company, American International Group Inc., which has also suffered major losses from bad mortgage investments.

For August, the drop in housing construction reflected a 1.9 percent decline in single-family construction which fell to an annual rate of 630,000 units. Construction of multi-family units fell by 15.1 percent to an annual rate of 265,000 units. Construction was down 13.6 percent in the Midwest. Source; Associated Press.