WASHINGTON (AP) – Dec. 19, 2008 – Struggling U.S. homebuilders cut back even more than expected last month, sending the construction of new homes plummeting in November by the largest amount in almost a quarter-century.

New home starts fell to a seasonally adjusted annual rate of 625,000 from a downwardly revised level of 771,000 in October, the Commerce Department said Tuesday.

That is a drop of 18.9 percent, the steepest since March 1984. The total is far below the 740,000 pace that Wall Street economists expected.

Applications for building permits, considered a good sign of future activity, fell by 15.6 percent to 616,000, from an upwardly revised figure of 730,000 in October. Economists expected an annual rate of 700,000 permits, according to a survey by Thomson Reuters.

The housing starts and permit figures are at all-time lows, breaking records that were set last month.

Separately, the Labor Department said the consumer price index fell by 1.7 percent last month, the largest drop in records going back 61 years. The drop was driven by a steep fall in energy costs.

The huge decreases reflect the severe recession gripping the United States and raise the pressure for the Federal Reserve to act decisively to guard against a debilitating bout of deflation.

The Fed wraps up a two-day meeting Tuesday. Economists expect the central bank to cut the federal funds rate, already at a low 1 percent, by another half-point in an effort to keep the recession from worsening.

Builders, meanwhile, continue to be discouraged by the prospects of a housing turnaround.

The new homes report comes a day after other dour housing news Monday, as the National Association of Home Builders/Wells Fargo housing market index held at a record-low level of nine in December for the second straight month.

Index readings higher than 50 indicate positive sentiment about the market. But the index has drifted below 50 since May 2006 and has been below 20 since April.

“It is going to be a very cold winter indeed for homebuilders,” Joshua Shapiro, chief U.S. economist for forecasting firm MFR Inc., wrote in a note to clients Monday.

Builders began new single-family homes at an annual rate of 441,000 last month, the department said, 16.9 percent below October’s figure of 531,000. That is the steepest drop in single-family home starts since January 1991.

Tighter lending standards, rising defaults and fear about the housing market’s future have sidelined buyers, an absence felt acutely by homebuilders such as D.R. Horton Inc., Pulte Homes Inc. and Centex Corp.

Source: FAR