U.S. new home construction tumbles in September

More bad news emerged from the battered U.S. housing sector on Friday as the government said construction of new homes and apartments tumbled last month.

The U.S. Commerce Department reported that new construction fell by 6.3 per cent for the month — much worse than the drop of 1.6 per cent that had been projected by economists.

On a seasonally adjusted basis, total production came in at an annual rate of 817,000 — the lowest pace since January 1991, when the U.S. was in recession.

Economists surveyed by Thomson/IFR had been expecting last month's housing starts to come in at an annual rate of 880,000 units.

The drop was led by a 20.9 per cent plummet in housing starts in the northeastern part of the country. Construction of single-family homes there fell to their lowest level on record.

The U.S. housing sector has been battered by the fallout from the subprime mortgage mess. Rising foreclosures have flooded the market with unsold properties, sending prices down.

"This housing sector report was simply awful, as it suggests that the U.S. housing market correction may have quickened in recent months," said Millan Mulraine, economics strategist at TD Securities.

"And with the U.S. economy appearing to have softened considerably in recent months, and the labour market remaining in a very depressing state, there is little to suggest that a turnaround in activity will occur any time soon," Mulraine said.

Royal Bank economist Josh Heller said that if a silver lining is to be found, it lies in the fact that the  lower starts fall, the faster excess inventory in the U.S. housing sector will be worked off.

"Only once inventories of unsold homes retreat back to historical norms do we expect prices to stabilize and a steady recovery to take hold," Heller said.