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LATEST US DATA: Housing starts plunge 14% in December

Building permits post biggest fall in 12 years as housing slump deepens

(WASHINGTON) Builders in the US broke ground in December on fewer houses than forecast, making 2007’s decline in homebuilding the worst in almost three decades.

The 14 per cent decrease to an annual rate of 1.006 million, the lowest since 1991, followed a 1.173 million pace the prior month, the Commerce Department said here yesterday. For all of 2007, starts were down 25 per cent, the biggest decline since 1980, to 1.354 million.

Building permits, a sign of future construction, declined by the most in 12 years, suggesting the housing slump will deepen as it enters a third year. Rising foreclosures will throw even more houses onto the market, hurting property values and threatening to push the economy into recession, economists said.

‘Housing will take a big chunk out of growth in the first half’ of this year, Patrick Newport, an economist at Global Insight Inc in Lexington, Massachusetts, said before the report.

‘Builders are cutting back production and discounting heavily but they haven’t really made a significant dent in inventories.’ Starts were projected to fall to a 1.145 million pace from a previously reported 1.187 million rate in November, according to the median forecast of 74 economists polled by Bloomberg News. Estimates ranged from 1.05 million to 1.2 million.

Permits fell 8.1 per cent to a 1.068 million annual rate, bringing 2007’s decline to 25 per cent, the biggest since 1974. Permits were forecast to drop to a 1.135 million annual pace, according to the survey median, after 1.162 million. Projections ranged from 1.05 million to 1.17 million.

Construction of single-family homes decreased 2.9 per cent to a 794,000 rate, yesterday’s report showed. Work on multi-family homes, such as townhouses and apartment buildings, plunged 40 per cent to an annual rate of 212,000 from the prior month.

The decrease in starts was led by a 31 per cent slump in the Midwest and a 26 per cent decline in the Northeast.

Federal Reserve policy makers, including chairman Ben S Bernanke, have signalled they may take more aggressive action in response to the increasing risk of slower growth.

Central bankers are likely to cut interest rates by half a percentage point when they meet this month, according to futures trading.

‘The demand for housing seems to have weakened further, in part reflecting ongoing problems in mortgage markets,’ Mr Bernanke said in a speech here on Jan 10.

Source: Bloomberg (Business Times 18 Jan 08)

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