Building permits, a barometer of future activity, also plummeted to a new record low pace. The embattled housing industry, which enjoyed a five-year boom, is now on pace to construct the fewest new homes and apartments since the end of World War II.
The Commerce Department reported Wednesday that construction of new homes and apartments dropped to an annual rate of 791,000 units from an upwardly revised September rate of 828,000 units. Previously, the slowest pace had been in January 1991, when the country was in recession and going through a similar housing correction.
Analysts surveyed by Thomson Reuters had expected construction to fall to a rate of 780,000 units. It was the fourth-straight monthly drop.
The declines in construction last month were led by a 31 percent drop in the Northeast, where construction of single family homes fell to a new record low. They also dropped 13.7 percent decline in the Midwest, but rose 7.5 percent in the West and a 1.5 percent in the South.
Applications for building permits, considered a good sign for future activity, also fell sharply in October, dropping by 12 percent to an annual rate of 708,000 units, the weakest on record.
The housing recession has triggered severe economic problems and calls for further action in Washington. Builder sentiment dropped to a record low in November, according to the latest survey from the National Association of Home Builders.
The trade group's housing market index, which started in January 1985, tumbled five points to nine in November, reflecting growing worries over the U.S. financial crisis, rising unemployment and weakening consumer confidence. Index readings higher than 50 indicate positive sentiment about the market. But the index has drifted below 50 since May 2006 and below 20 since April.
Tighter lending standards, rising defaults and fear about the housing market's future have sidelined buyers, an absence felt acutely by homebuilders such as D.R. Horton Inc., Pulte Homes Inc. and Centex Corp.
In recent weeks, homebuilders have ratcheted up pressure on Congress to take steps that go beyond trying to reduce foreclosures. The industry wants lawmakers to enact new incentives aimed at getting reluctant homebuyers back into the market.
Specifically, the group is asking for a 10 percent tax credit of up to $22,000 for homebuyers that purchase a home over the next year, and a temporary interest-rate reduction on 30-year mortgages.