Fewer homes were under construction in August than at any previous time on record, dating back to 1970, the Commerce Department reported Tuesday. In August, builders broke ground on less than half the level of homes that economists say is needed for a healthy housing market.

Builders began work on a seasonally adjusted 571,000 homes last month, a 5 percent drop compared to July. Economists consider a 1.2 million pace healthy for the housing market.

Hurricane Irene, which battered the Northeast in late August causing widespread damage, seemed to be partially to blame for the dismal numbers. New-home construction in the Northeast alone dropped nearly 30 percent. 

The new-home market continues to struggle to compete against deep discounts from a glut of foreclosures on the market and a tightening of credit that is keeping more home buyers on the sidelines. 

However, there was one bright spot from Tuesday’s new-home report: Building permits, which serve as a gauge for future construction, increased 3.2 percent--its highest level since December.

Builders’ Confidence Wanes

Meanwhile, builder confidence about the new-home market continues to hover around record lows, according to an index that measures builder sentiment. 

Builder confidence dropped one point to 14 this month as “many consumers are simply unwilling or unable to move forward with a home purchase in today’s uncertain economic climate,” said NAHB Chief Economist David Crowe. The index has held between 13 and 16 for six consecutive months, according to the National Association of Home Builders/Wells Fargo Housing Market Index for September. 

"Very little has changed in terms of housing market conditions so far this year," says NAHB Chairman Bob Nielsen. "Builders continue to confront the same challenges in accessing construction credit, obtaining accurate appraisal values for new homes, and competing against foreclosed properties that they have seen for some time. Beyond this, both builder and consumer confidence took a hit in recent weeks with the market disruptions caused by the S&P downgrade and congressional gridlock on the budget deficit." 

Source: “Construction Is Less Than Half the Level That Economists Say is Needed for a Healthy Economy,” Associated Press (Sept. 20, 2011) and “U.S. August Housing Starts -5.0% to 571K; Consensus -2.3%,” Dow Jones International News (Sept. 20, 2011)

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