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For home builders in Tucson, the best thing about 2008 is probably that it's half over.

After a more moderate decline in 2007, new-home starts plunged this year to levels not seen since the early 1990s, according to market research firm Bright Future Business Consultants.

The number of single-family home permits issued in June fell to 320, down 35 percent from a year ago and down 15 percent from May, according to Bright Future Business Consultants' Southern Arizona Housing Market Letter, released Thursday.

Permits in June 2005, near the peak of the market, totaled 1,240, the report said.

Deepening problems in the economy such as the rapid rise in oil prices and further tightening of credit markets are making this year even more difficult than some builders expected.

At least one local builder, Sierra Pacific Homes, has filed for bankruptcy protection this year.

Now builders are hoping the market will start to regain its footing in the months ahead.

"Another month we get behind us, the closer we are to having (the market) turn around," said Craig Campbell, president of local builder Miramonte Homes, owned by Standard Pacific until recently.

Prices for new homes are continuing to slide, said John Strobeck, owner of Bright Future Business Consultants. Entry-level homes, under $150,000, are also a rapidly growing market segment, he said.

In June, the median the median, or middle, price for new homes dropped to $220,515, down 5 percent from May and 9 percent from a year ago, according to Bright Future.

The average price also fell to $252,928, down 4 percent from May and 13 percent from June 2007.

"We don't have too much further to go," Strobeck said.

But according to his own calculations, the median price for new construction could continue to drop until 2010, when it reaches what would have been a normal appreciation level if the housing boom were erased.

Campbell said Miramonte houses start at around $215,000, without additional incentives, down about $20,000 from a year ago.

Rudy Carrillo, vice president of sales for Meritage Homes in Tucson, said his company's lowest-priced houses in Sahuarita community Madera Highlands are about $150,000, compared with about $200,000 a year ago, but he said that is because Meritage is offering a different mix of houses now.

"We're not reducing prices," he said.

Gas prices have been getting plenty of headlines recently, but builders say the impact on house sales in some of their far-flung communities has been negligible.

"I have not seen any appreciable effect of gas prices at all," said Strobeck, adding that Pulte Homes' Red Rock Village in Pinal County has been a top-selling development in the region for the past year.

Carrillo said he thinks families are still looking for developments "on the fringe" rather than closer to urban centers.

"That urban dweller is a totally different profile than the type of buyer we're trying to attract in Madera Highlands," he said.

The builder is hosting a grand opening for four new Madera Highlands neighborhoods from 10 a.m. to 2 p.m. on Saturday, featuring free McDonald's Happy Meal gift certificates, among other giveaways.

Overall, new-home permit volume is on track to hit 3,700 this year, according to Bright Future, less than a third of the total in 2005. That number falls slightly short of Strobeck's earlier prediction of 4,000.

But Strobeck said there is at least one encouraging sign — the resale-home inventory is headed downward, reducing the oversupply of houses on the market.

Meritage and Miramonte representatives said they are demonstrating their faith that the market will strengthen by opening new developments.

Miramonte Homes opened The Estates at Gladden Farms, on the Northwest Side in June.

Although there have been no sales so far, "we've had good interest," Campbell said.

Track trends in the local real estate market at www.azstarbiz.com.