The number of homes built in the United States is set to decline further as the volume of housebuilding permits fell to a 14-year low last month.

The demand for construction permits, which is directly linked to the outlook for the housing market, fell by 6.6 per cent in October to an annual rate of 1.178 million, according to the US Commerce Department.

Meanwhile, builders began work on fewer single-family homes last month than at any time since October 1991, declining by 7.3 per cent to an annual rate of 884,000, as potential first-time buyers wait for prices to fall even more and banks tighten their lending criteria.

Sentiment among builders is at a record low as they sit on huge supplies of unsold houses and face the prospect of increasing foreclosures, falling prices and declining demand.

Goldman Sachs did nothing to improve their outlook yesterday as it issued a gloomy report on the American financial services sector, saying that house prices were likely to fall a lot further.

“Investor appetite for high-yielding sub-prime mortgage securities fuelled the home-pricing bubble and this investor market is not coming back,” the note said.

In one positive note, the Commerce Department said that the overall number of houses that had begun construction had increased by 3 per cent in October to an annual pace of 1.229 million, in their biggest gain in eight months. Analysts attributed the unexpected rise to an increase in new condominium projects.

Yesterday’s figures came a day after The National Association of Home Builders said that its confidence index continued to be stuck at a record low of 19 this month.

The housing industry is key to the health of the American economy since it is the biggest determinant of the confidence of its consumers, who make up about two thirds of its spending.

Across the economy, consumer spending is predicted to grow at an annual rate of 2 per cent in the fourth quarter, down from 3 per cent in the previous three months.

Goldman Sachs’s analysis of the outlook for the financial services industry predicted that the value of collateralised debt obligations (CDOs), or pools of bonds, backed by sub-prime mortgages could fall by another $150 billion (£73 billion), on top of the $18 billion that has already been written off on CDOs in the third quarter and the $22 billion that is expected to be lost in this quarter.

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