American builders probably broke ground in December, 2008 on the fewest houses on record as sales and credit dried up, economists said before reports expected this week.

Housing starts fell 2.7 percent last month to an annual rate of 605,000, the lowest level since the United States Commerce Department started compiling data in 1959, according to the median estimate in a Bloomberg News survey. Building permits, a sign of future projects, also probably dropped to a record low.

Builders, whose shares have lost 76 percent of their value over the last three years, are slashing prices to compete with a record number of foreclosed homes coming onto the market. In recognition of the need to stem the housing slump, President-elect Barack Obama's advisers say he will use up to US$100 billion in financial-rescue funds to ease the mortgage crisis.

"Starts and permits will continue to drop over the first half of this year," said Nigel Gault, chief US economist at IHS Global Insight in Lexington, Massachusetts. "A second half rebound is likely, provided financial markets continue to thaw and interest rates remain low." The housing-starts report for December is due on Thursday. Construction of new homes fell 21 percent in November to a 625,000 annual rate.

Residential starts will slump another 29 percent in 2009 after dropping an estimated 33 percent last year, according to a survey released on January 6 by the National Association of Realtors.

Home builders are curbing construction and cutting prices as mounting foreclosures push up the inventory of unsold homes. Delinquency filings increased 41 percent in December from a year earlier, according to RealtyTrac Inc, a seller of default data.

Harder to sell

Falling prices also make it harder for owners to sell their properties and buy new houses. Home values in 20 major US cities fell 18 percent in October, the fastest rate on record, according to the S&P/Case-Shiller index released last month.

Los Angeles-based KB Home, the fourth-largest US home builder, this month reported a fourth-quarter loss exceeding analysts' estimates and predicted more pain for the housing market in 2009. It took a charge of US$265.9 million to write down inventory and land it no longer intends to build on.

"The housing industry continues to confront unprecedented downward pressure," Chief Executive Officer Jeffrey Mezger said in a January 9 conference call with analysts and investors. "These conditions persist nationally with no visible signs of lessening in the near term."

The combination of slumping prices and increasing foreclosures is dragging down optimism among construction companies.

(Shanghai Daily January 19, 2009)