U.S. housing starts fall 5%

New U.S. home construction fell to its lowest level since October in June, a troubling sign that the American economy continues to struggle.

Overall, construction of new homes and apartments in June fell five per cent from a month earlier to a seasonally adjusted annual rate of 549,000, the Commerce Department said Tuesday.

Driving the decline was a precipitous 20 per cent drop in the multiple starts segment, which includes apartment buildings and condominiums. Multiple starts are typically more volatile than single-family homes.

The agency revised May's figure downward to 578,000. The housing market is a closely watched economic indicator because spending there tends to spill over into many other areas, including taxes and home furnishings.

Experts suggest the market is suffering from a glut of foreclosed homes on the market at the moment. That reduces the need to build new homes.

The summer is proving particularly slow for builders since the federal government removed incentive programs for new buyers at the end of April. New home sales in May dropped 33 per cent to the slowest pace in the 47 years records have been kept.

Indeed, builders appear to be turning their attention away from new buildings and into completing existing projects. Housing completions rose 26.2 per cent in June.

"The housing market remains the Achilles heel of the recovery," said M. Cary Leahey, a senior economist at Decision Economics. "It is hard to imagine confidence recovering to healthy levels until the housing market experiences much less distress."

In an encouraging sign, building permit applications rose 2.1 per cent from a month earlier to an annual rate of 586,000. Permits are more forward looking, as they are an indication of future activity.

Despite the housing start drop, the rate of home building is still up about 15 per cent from the bottom in April 2009, though it's down 76 per cent from the last decade's peak in January 2006.