WASHINGTON - Home construction fell in July to the lowest level in 101/2 years, and analysts said there was no end in sight to the deepening housing slump.

The Commerce Department reported yesterday that construction of new houses and apartments dropped 6.1 percent in July from the June pace to an annual rate of 1.38 million units.

That was down 20.9 percent from the pace of activity a year ago and represented the slowest construction pace since January 1997.

Analysts said the housing problems were worsening because of rising mortgage defaults, especially in the market for subprime loans. That is dumping more homes on an already glutted market and causing banks to tighten lending standards, making it harder for prospective buyers to qualify for new mortgages.

The National Association of Home Builders' confidence survey index fell to 22 points in early August, the lowest point since January 1991, when the country was going through another severe downturn in housing.

David Seiders, chief economist for the organization, said it would be some time before housing would start to rebound. He is forecasting that sales will stop falling by the end of the year and construction will stabilize in the middle of 2008.

Other analysts said to expect more bad news before housing stabilizes.

"As bad as July's numbers were, they are bound to get worse in the next one to three months because of the turmoil in financial markets today," said Patrick Newport, chief U.S. economist for Global Insight Inc. "A mortgage is getting harder to get, especially for those who cannot qualify for prime loans."

The troubles in subprime mortgages, which are offered to borrowers with weak credit histories, have roiled other segments of the credit market and sent stock prices plunging in recent days. Investors have worried about what big institutions could be put at risk because they cannot get repaid on loans they have made.

Applications for building permits, considered a good barometer of future activity, fell 2.8 percent in July to an annual rate of 1.373 million units.

Housing construction fell in all parts of the country except the Midwest, which posted a 2.6 percent increase in July. Construction starts were down 11 percent in the South, 3.7 percent in the West, and 1.3 percent in the Northeast.

In a second government report, the Labor Department said yesterday that the number of newly laid-off workers filing for unemployment benefits rose by 6,000 last week to 322,000. The increase was unexpected. Analysts had been looking for a decline of about 1,000.

The current housing slump is the worst since a downturn during an economic recession in 1990 and 1991.

Overall economic growth has slowed, but there has been no recession as other sectors have offset the weakness in housing. Private economists say the threat of a recession will rise if consumer and business confidence is eroded by the troubles in financial markets.