Housing starts fell 10.2% in September to 1,191,000 from August and 30.8% from September, 2006, the lowest level since March of 1993, according to the Census Bureau and Department of Housing and Urban Development, which reported the numbers this morning (Oct. 17) Building permits fell by 7.3% in September from August, to 1,322,000, 25.7% below September last year.

Much of the decline in starts appeared to be in the multi-family sector.Single-family starts were off 1.7% to at a seasonally adjusted rate of 963,000. The September rate for units in buildings with five units or more was 201,000, down sharply from 311,000 in August.

Single-family permits in September fell 7.1% to 868,000. Authorizations of units in buildings with five units or more were at a rate of 311,000 in September, down from 324,000 in August.

Completions in September fell 8.2% from August and 31.1% from last September. Single-family completions were off 11.6% from August. The September rate for units in buildings with five units or more was 265,000, up from August's 254,000.

Regionally, starts were up 45.4% in the Northeast, down 28.4% in the Midwest, and down 11.7% in the South and 10.1% in the West, respectively. Permits were down 4.1% in the Northeast, up 3.0% in the Midwest, down 2.4% in the South and down 23.3% in the West.

The declines surprised Wall Street, which was expecting more moderate declines. Carl Reichardt, home building analyst at Wachovia Capital Markets, wrote in a research note, "As yesterday's (10/16) Housing Market Index (HMI) indicated, sentiment towards new construction appears to be at an all-time low. With builders holding such bleak outlooks on both current and future conditions, we should expect to see starts and permits continue to decline sharply. Both starts and permits have declined on a double-digit yr/yr basis for 16 consecutive months, bringing their respective paces to levels running 48% and 46% below the peak rates. With excess inventory levels of both new and existing homes and lack of meaningful demand, builders are reacting appropriately, in our view, by reining in new construction."

Similarly, Michael Rehaut, the lead home building and building products analyst at J.P. Morgan Securities, wrote in a note to investors, "While these points represent a positive step in lowering the supply of new homes, we nonetheless believe the overall supply picture remains highly challenged, given still highly elevated levels of existing homes available for sale, which we note is 9x the size of the new home market. As a result, given these highly elevated inventory levels, which we believe will cause continued pricing pressure and in turn drive large land charges over the next few quarters, we believe further downside to the group remains and reiterate our cautious stance."

Stephen East, home building analyst with Pali Research, took a slightly more positive view: "As we've stated before, this pain is perversely a very good thing for the industry, as excess inventory must be wrung out of the system. Our net takeaway for this latest monthly report is Positive for the industry and ultimately equities within this industry."