WASHINGTON, Aug 20 (AP/Reuters): Construction of homes and apartments fell in July to the lowest level in more than 17 years, the government reported Tuesday.
The commerce department said that builders broke ground on 965,000 housing units on an annualised basis. That was down from a pace of 1.08 million in June and the weakest showing since March 1991.
However, July's performance was better than analysts expected. Wall Street economists forecast that housing starts would drop to a pace of 950,000.
Still, the latest housing figures continue to show a badly battered housing market, one of the biggest problems plaguing the already shaky national economy.
The report showed that construction of single-family homes in July fell by 2.9 per cent from the previous month to a pace of 641,000. That was the lowest since January 1991, when the economy also was in distress.
New home construction last month was down a sharp 39.2 per cent compared with July 2007, illustrating how much ground the housing market has lost in the past year.
Construction of apartments and other multifamily dwellings also fell sharply in July, after a large jump in the previous month due to a change in New York City's building codes. That change, which went into effect on July 1, gave a rare lift to overall housing construction in June.
Housing permits in July fell to a rate of 937,000, a 17.7-per cent drop from June, but still above analysts' expectations of 925,000. Permits are considered a reliable sign of future activity.
Homebuilders are hoping the housing rescue package approved by Congress last month will boost the dismal real estate sector. The law includes a temporary $7,500 tax credit for first-time homebuyers that essentially works out to a 15-year, interest-free loan.
The National Association of Home Builders/Wells Fargo housing market index, released Monday, remained at a record low of 16 in August for the second consecutive month. Readings below 50 indicate negative sentiment about the market.
But one measure of longer-term sentiment improved slightly: a measure of builders' sales expectations in six months rose two points to 25.
Still, homebuilder Toll Brothers Inc reported dismal quarterly results last week when its revenue fell 34 per cent and its order backlog plunged 52 per cent.
Shares of several homebuilders, including Toll Brothers, DR Horton Inc and Pulte Homes Inc, dropped Monday, partly due to renewed fears about the financial health of mortgage giants Fannie Mae and Freddie Mac.
Meanwhile, the US Federal Reserve must be ready to take action if slowing economic growth fails to curb inflation stemming from higher food and energy prices, two top Fed policy-makers said Tuesday, indicating that higher interest rates may be needed.
Richard Fisher, president of the Dallas Fed, and Jeffrey Lacker, president of the Richmond Fed, both of whom are known for their hawkish stances on inflation, warned that vigilance on price pressures is necessary even as oil prices have come off their peaks.
Fisher is a voting member of the policy-setting federal open market committee (FOMC) this year and has dissented at every meeting so far in favour either of higher rates, or of less aggressive easing. He said is "very comfortable" with his a reputation as one of the most anti-inflation Fed officials.
Lacker, who is not a FOMC voter this year but dissented with the rate-setting group's majority decision in the past, echoed some of Fisher's comment in an interview with Bloomberg TV.
"Should this happen and the Fed were to fail to address it, we would run the risk of losing the public's confidence in our ability to constrain inflation," he said.
Earlier Tuesday, the labour department reported that US wholesale prices rose at the fastest annual rate in 27 years. Producer prices in July were up 9.8 per cent from a year ago, the biggest increase since 1981, while prices excluding food and energy were up 3.5 per cent, the biggest rise since 1991.
Fisher welcomed the recent decline in oil prices and said he was not surprised by the rise in the value of the dollar on foreign exchanges markets. A stronger dollar helps blunt rising import prices, but Fisher cautioned it was premature to conclude the currency's rise would keep inflation at bay.
