Starts on new homes nationwide slumped to the lowest in 1-1/2 years in October, mainly due to sharply reduced building of multi-unit homes, according to a government report on Wednesday that underlined the strains facing the sector.

The Commerce Department said overall construction starts plummeted 11.7 percent to a 519,000 annual rate from a downwardly revised 588,000 in September.

It was the weakest starts rate since 477,000 in April 2009 when the economy was still coping with the severe impact of the 2007-2008 financial crisis.

Economists surveyed by Reuters had anticipated a starts rate in October of 600,000 – far higher than the actual outcome.

Permit applications for new building edged up to 550,000 last month from an upwardly revised 547,000 in September, potentially a sign that builders hope for better times ahead.

The drop in October starts was concentrated in multi-unit buildings. Single-family home starts were down 1.1 percent from September to 436,000 but multi-unit construction starts plunged 43.5 percent to 83,000.

There was one hopeful sign in the starts numbers, as inventories of completed but unsold homes fell to a record low 79,500, suggesting the drag from an overhang of unsold homes might be lightening.

Analysts had blamed a backlog of unsold new homes, coupled with turmoil in markets for existing homes where falling prices and a rising tide of bank foreclosures, for creating uneasiness that casts a pall over future prospects.

A survey on Tuesday showed that optimism about the future among home builders rose slightly for a second straight month during November, but remains at historically low levels. The National Association of Home Builders said its members still were having trouble getting the bank credit they need to start projects and said that was "a roadblock to recovery" in much of the country.