The Weird World Of Economics

Home builders pulled back from an uninviting market last month, slowing the pace of residential construction even more than in recent months, to the lowest level in six years.

The latest housing statistics, released yesterday by the Commerce Department, suggested that the months ahead would be equally bleak. The number of building permits issued in October fell for the ninth straight month, dipping to the lowest rate since 1997.

The report deepened concerns that the slowdown in the housing market could brake economic growth more than analysts have anticipated.

The number of new homes that builders started in October was down 14.6 percent from September, at seasonally adjusted annual rates, to 1.49 million. The number of building permits issued fell 6.3 percent, to 1.54 million.

Yesterday’s report shows a stark contrast from a year ago, when the housing market was still roaring. New residential construction has now plummeted by 27.4 percent from October last year. New building permits fell 28 percent over the same span.

The only region of the country not to show considerable weakness last month was the Northeast, where the construction of apartments in New York and New Jersey helped cause a 31 percent jump in residential building for the month. Everywhere else saw a decline: the West, 2.1 percent; the Midwest, 11.7 percent; and the South, 26.4 percent.

Economists disagree about whether home construction, sales and prices can fall much further, but some said yesterday that the new numbers suggested that the market was a long way from seeing any growth.

“The only way builders appear to be able to stimulate demand and shift unsold inventory is by practically giving these newly built homes away,” Capital Economics, a research firm in London, wrote in a note to investors. “No wonder they now seem very reluctant to start building more homes.”

In its latest survey, the National Association of Home Builders reported that builders were cutting prices with greater urgency than they were a year ago. In October, 28 percent of builders surveyed said they had lowered their prices by 5 to 10 percent, and another 8 percent said they had cut prices by more than 10 percent.

By contrast, in its September 2005 survey, the association reported that only 3 percent of builders in the country were discounting their homes by more than 5 percent.

The sharpest decline in construction activity last month was in single-family houses rather than multifamily units and apartments. Economists said that was particularly alarming, because single-family houses are by far the biggest component of residential building. The number of single-family home starts was 31.8 percent lower in October than a year earlier.

“Certainly this looks very much like a recessionary type of adjustment for this sector,” said Brian A. Bethune, a United States economist with the research firm Global Insight. “This data does not suggest that we’re going to dodge a bullet. It does look severe.”

For some economists, the data pointed to even slower growth in the months ahead. Ethan Harris, chief United States economist for Lehman Brothers, revised his prediction for fourth quarter gross domestic product to 2.5 percent from 2.8 percent.

The price of United States government bonds posted their biggest gains yesterday in nearly three weeks, a sign that bond investors believe the economy will continue to slow. In a day of up and down trading, the stock market shrugged off the signs of a deepening slowdown in housing.

With other areas of the economy holding up — the job market is relatively healthy, consumer spending continues to rise and gasoline prices have fallen — many economists are hopeful that the effects of a sagging housing market will be contained.

“Outside of housing, the economy looks quite good,” said Marisa DiNatale, an economist with Moody’s Economy.com. “So we think the economy is going to weather this.”

Economists said that in one sense, the decline in building activity last month showed that builders were getting the message and setting themselves up for a quicker recovery. Peter E. Kretzmer, senior economist with Bank of America, said the deceleration last month could be a “silver lining” that would help builders sell off the huge backlog of unsold new homes.

NYTimes.Com

The Modern Economics of Housing: A Guide to Theory and Policy for Finance and Real Estate Professionals