Construction on new residential buildings fell 11.7% in October, far worse than many analysts had expected and providing fresh evidence that the real estate market is struggling as it enters the traditionally slow winter season.
The Commerce Department reported Wednesday that housing starts fell to a seasonally adjusted annual rate of 519,000 last month, a 1.9% decline from October 2009.
The weakness was concentrated in the market for buildings with multiple units: apartments and condominiums. That segment of the residential construction industry is volatile, and starts tend to vary from month to month.
Single-family home construction was also fairly anemic in October, with starts falling 1.1% from September to a rate of 436,000 units a month. Michael D. Larson, an interest rate and housing analyst with Weiss Research, said home builders were struggling.
"The construction industry remains mired in the muck," Larson said. "This should not come as a surprise. We have so many existing, distressed homes for sale already, and even more will hit the market once various foreclosure moratoriums expire. That means builders have little incentive to ramp up production, despite stabilization in sales rates."
Regionally, starts dropped 30.5% in the West and 13.4% in the South. They rose 1% in the Midwest and 12.9% in the Northeast. The number of permits issued on residential buildings was at a seasonally adjusted annual rate of 550,000 in October, up 0.5% from the month before but down 4.5% from October 2009.
In another sign that the housing market is in a rut, applications for mortgages fell last week as interest rates jumped.
The Mortgage Bankers Assn. said Wednesday that its market composite index, which measures the volume of home loan applications, fell 14.4% on a seasonally adjusted basis last week compared with the week before.
Applications for mortgage refinances fell 16.5% and purchase applications fell 5%, the group said.
Mortgage rates were up as a sell-off in the bond market pushed up longer-term interest rates across the board. The average rate for a 30-year fixed-rate mortgage jumped to 4.46% from 4.28%, with points increasing to 1.13 from 1.04 for loans that would cover 80% of the value of a home.
The average rate for a 15-year fixed-rate mortgage increased to 3.87% from 3.64%, with points falling to 0.91 from 1.08.
Michael Fratantoni, the bankers association's vice president of research and economics, said the increase in rates was due to stronger economic data and rising concern over the Federal Reserve's "quantitative easing" program, under which the Fed plans to buy $600 billion worth of Treasury bonds by mid-2011.