Housing Starts Slump Lower
Wednesday, October 17, 2007SUSIE GHARIB: Disappointing economic news today about inflation and the slumping U.S. housing market. The government said consumer prices rose .3 of a percent last month, as food and energy prices heated up. Excluding those volatile costs, prices rose .2 of a percent. Now in a separate report, housing starts tumbled in September to their lowest level since 1993. As Erika Miller reports, analysts say the worst is probably not over yet for housing.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: New home construction got hammered last month and that's raising fears of a further slowdown in the economy. Housing starts plunged 10 percent in just one month to the weakest level in 14 years. Permits, which are a sign of builder confidence, slumped 7 percent to their lowest reading in 12 years. Lehman Brothers economist Ethan Harris says the declines are a result of tougher mortgage requirements.
ETHAN HARRIS, CHIEF US ECONOMIST, LEHMAN BROTHERS: Over the course of the summer, we had a further tightening of credit in the housing market and builders are finding lots of cancellations of homes. So, with all those cancellations of purchases, they've decided, you know what? We've really got to cut back significantly on the production of new homes.
MILLER: Goldman Sachs economist Jan Hatzius was particularly troubled by one component within the report.
JAN HATZIUS, CHIEF US ECONOMIST, GOLDMAN SACHS: Multifamily starts fell sharply. I think what that's saying -- and it's in line with a couple of other reports that we've been getting recently -- is that the commercial real estate area is starting to weaken.
MILLER: Most economists believe the housing downturn will slash economic growth by at least a percentage point in the current quarter. That's about a third of the nation's average growth rate.
HARRIS: I think there are two ways that the weakness in housing affects the rest of the economy. The first is cuts in employment, which will feed into broader spending activity. And the other is the negative effect on consumer confidence and consumer spending.
MILLER: Wall Street expects the deteriorating housing market will be a major concern of Federal Reserve policy makers at their next meeting October 30 and 31.
HATZIUS: It's not at all a straightforward case. It certainly could go either way. But we think it's more likely than not that they will, in the end, decide to cut.
MILLER: Economists are hesitant to predict when the housing market will bottom. They say one promising sign would be a stabilization in the number of unsold homes, something that is not expected soon. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
