U.S. builders broke ground last month on the fewest homes in nearly two years, a reflection of declines in home prices and diminished demand that has made it difficult for them to compete.
Home construction plunged 22.5 percent in February from January to a seasonally adjusted 479,000 homes, the Commerce Department said Wednesday. It was the lowest level since April 2009 and the second-lowest on records dating back more than a half-century.
The decline in housing starts followed a surge in highly volatile apartment construction in January, which pushed the overall construction rate up to more than 600,000 units — the fastest rate in 20 months. Still, the overall building pace has been far below the 1.2 million units a year that economists consider healthy.
Millions of foreclosures have forced home prices down and more are expected this year. Tight credit has made mortgage loans tough to come by. And some potential buyers who could qualify for loans are hesitant to enter the market, worried that prices will fall further.
The drop in home construction activity was felt coast to coast. It fell 48.6 percent in the Midwest, 37.5 percent in the Northeast, 28 percent in the West and 6.3 percent in the South.
Single-family home construction fell 11.8 percent in February. Apartment and condominium construction dropped 47 percent, reversing much of January's gains.
Economists say falling prices, sluggish sales and the weak construction rate all point to a housing market that is years away from a recovery.
"There are really large structural problems with the housing market," said Dan Greenhaus, chief economic strategist with Miller Tabak + Co. "This is not a run-up in oil prices. This is a multiyear build up in the housingmarket that is going to take more than several months or several quarters to get through."
The volatile housing market is weighing on the overall economic recovery. Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.
The trade group said Tuesday that its index of industry sentiment for March improved slightly to 17. That was the first gain in five months after four straight readings of 16. Still, any reading below 50 indicates negative sentiment about the housing market's future. The index hasn't been above that level since April 2006.