New home construction fell more than expected in August, but rose 2.2% in the West.

U.S. home construction fell more than expected in August to the lowest level in three months as the faltering industry remained one of the weakest parts of the sluggish economy. Construction of homes and apartments last month decreased 5.0% from a month earlier to a seasonally adjusted annual rate of 571,000, the Commerce Department said Tuesday. The month's results were pulled down by a nearly 30% drop in the Northeastern states.

Compared with the same month a year earlier, new-home construction in August was down 5.8%. Figures for July were revised downward to an annualized pace of 601,000.
Construction remained below a healthy level, which economists say would be around 1 million to 1.5 million starts per year.

However, builders appear to be ramping up for more construction projects. Newly issued building permits, a gauge of future construction, rose 3.2% from a month earlier to an annual rate of 620,000, the highest level since last December.

Economists surveyed by Dow Jones Newswires expected housing starts would fall by 2.3% to an annual rate of 590,000. Permits had been projected to fall 1.8% to an annual rate of 590,000.

The nation's home builders have been battling the worst downturn in generations. New-home sales have been weak, partly due to competition from deeply discounted foreclosed properties. Other troubles for the industry include tight mortgage-lending standards and the elevated unemployment rate, both of which are sapping demand.

In July, new-home sales fell to their lowest level in five months as consumers grew more jittery about weakening economic conditions.
Construction of single-family homes, which made up 73% of all starts, fell by 1.4% from a month earlier. Construction of multifamily homes with at least two units, a volatile part of the market, was down 13.5% on a monthly basis.

Builders are remaining idle due to lackluster demand from buyers. Many buyers have been choosing foreclosures and other previously owned homes rather than new homes, which typically are more expensive
.
Reflecting weak demand, fewer homes were under construction in August than at any time on records dating back to 1970.

Builders have also had problems getting financing to start projects and have been coping with rising costs for materials. They have been gloomy about the industry's outlook. On Monday, the National Association of Home Builders said its index of builders' confidence fell to 14 in September, down from 15 a month earlier.

Readings above 50 indicate that more builders view conditions as good rather than poor. The last time the home builders' confidence gauge was in positive territory was April 2006.

On Monday, Lennar Corp. said its earnings for the fiscal third quarter slumped 31% as the big home builder delivered fewer homes than a year earlier. However, new-home orders climbed, and the company said Monday that it expects to be profitable in the fourth quarter.
The Commerce Department data showed that housing starts fell on a monthly basis in two out of four U.S. regions. They fell 29.1% in the Northeast and 3.3% in the South but rose 2.6% in the Midwest and 2.2% in the West.
By ALAN ZIBEL And JEFF BATER