July construction data show industry in 'deep hole'

Work began on fewer homes than forecast in July and building permits fell to the lowest level in more than a year, indicating little evidence of a rebound in U.S. construction following an expired tax credit.

Housing starts totaled 546,000 at an annual rate last month, less than the 560,000 median estimate of economists surveyed by Bloomberg News and up 1.7 percent from June, Commerce Department figures released Tuesday show. Building permits fell 3.1 percent to a 565,000 pace.

Builders are struggling to drum up demand following the end of government support for the industry, even with mortgage rates at a record low. Mounting foreclosures are adding to inventory and restraining prices as near 10 percent unemployment hampers the economic recovery.

"The tax credit brought forward some demand, and now we're in the middle of the payback," said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Mass. "We're in a deep hole . . . There's no sign that we're about to climb out."

Building permits, a gauge of future construction, dropped last month to the lowest level since May 2009. Permits for single-family housing, the biggest part of the market, decreased 1.2 percent to a 416,000 pace, the slowest since April 2009.

Construction of single-family houses declined 4.2 percent, and work on multifamily homes, such as town houses and apartment buildings, increased 33 percent to an annual rate of 114,000.

Housing construction grew earlier in the year when the government offered buyers up to $8,000 in federal tax credits. After incentives expired in April, sales and construction activity slumped.