A barometer of future building also dropped to the weakest level in more than 25 years.

The building industry is on pace to construct the fewest new homes and apartments this year since the end of World War II.

The Commerce Department reported Friday that construction of new homes and apartments dropped by 6.3 per cent last month, a much bigger decline than the 1.6 per cent decrease that had been expected.

It pushed total production to a seasonally adjusted annual rate of 817,000 units. That's the slowest pace since Jan 1991, when the US was in a recession and going through a similar painful housing correction.

The declines last month reflected weakness in many parts of the country. It was led by a 20.9 per cent drop in the Northeast, where construction of single-family units fell to the lowest level on record.

Construction slipped by 16.8 per cent in the West with single-family building hitting a record low there, too. The Midwest saw a gain of 5.6 per cent, although that reflected strength in apartment construction as single-family building also hit a record low in that region. Construction activity in the South was up a slight 0.5 per cent.

Applications for building permits, considered a good sign for future activity, also fell sharply in Sept, dropping by 8.3 per cent to an annual rate of 786,000 units, the weakest level since Nov 1981.

The housing industry, which enjoyed a five-year boom, is suffering its worst downturn in decades.

The weakness in housing, where prices have been falling sharply in many parts of the country, has triggered severe economic problems. The government has been forced to rush through a US$700 billion rescue package for banks which have been hit with billions of dollars in losses from soaring defaults on mortgages.

Banks, worried about their cash reserves and the health of other banks and businesses, have tightened lending, causing credit markets around the world to freeze, stock markets to tumble and anxiety about a global recession to rise.

Builder sentiment dropped to a record low in Oct, according to the latest survey from the National Association of Home Builders which said builder confidence had been shaken by the recent financial market troubles. Builders have been facing tighter lending standards as they try to get financing for new projects. -- AP