The inventory of unsold new homes in Southern California soared to its highest level since 1990 by the end of the second quarter, according to a report that will be released Wednesday, and construction activity has dropped dramatically as builders adjust to the slowing market.

At the end of June, there were 16,595 new houses and condominiums for sale from Santa Barbara County to San Diego County (excluding Imperial County), up 171 percent from the end of July 2005, according to a report that will be released by the Real Estate Research Council at California State Polytechnic University, Pomona.

That's the biggest supply overhang since 20,942 new homes languished on the market at the end of 1990, said Michael Carney, the council's executive director.

The record inventory is 32,191 new properties in the middle of 1982.

In Los Angeles County, the unsold new home inventory rocketed an annual 375 percent, to 1,975 properties at the end of June. That's the most since 2,054 new homes were on the market at the end of 1995.

The most distress, however, is in San Diego County, where a record 6,927 properties were on the market at the end of June. Eighty-four percent are attached units,

Southern California now accounts for 3 percent of the unsold new home inventory in the U.S. and 14 percent in the West.

"There is no question in my mind there's a number of indicators showing a large unexpected decrease in the demand for housing," Carney said.

It's happening in lots of other places, too, he said.

Carney's assessment came the same day the California Building Industry Association released a report showing that construction activity took a big drop between June and July, and is 15.9 percent under the year-ago level during the year's first seven months.

Overall housing starts last month, as measured by the number of building permits issued, fell 43 percent from June.

Nevertheless, the Sacramento-based association said the industry is still on track to bring 180,000 units to market this year.

Alan Nevin, the association's chief economist, is not alarmed by the current inventory levels even though that's how the years-long residential real estate slump started in the early 1990s.

"The numbers are high compared to where they were a couple of years ago but they really aren't bad at all," he said.

The average subdivision in the state has fewer than 11 homes that have not sold and Nevin thinks that inventory can be cleared by the end of the third quarter.

"Then they will only start what they have pre-sold," he said.

Last month, builders pulled permits for 8,112 single-family homes statewide, down 35.1 percent from the previous month and 22.6 percent from a year ago.

Multifamily housing starts - condos and apartments - totaled 3,009, down 56.9 percent from the previous month but up an annual 4.5 percent.

In Los Angeles County, builders pulled 767 permits for detached houses in July, down 32 percent from June and 10.8 percent fewer than a year ago. There were 848 permits for multifamily projects pulled, down 44.2 percent from June and 28.2 percent from a year ago.

Nevin expects that new-home construction in California will continue cooling from a superheated state to more a more normal level the rest of the year.

He said builders are using aggressive marketing techniques, like offering upgrades and price reductions, to reduce their inventory.

And Ben Bartolotto, research director at the Burbank-based Construction Industry Research Board, which supplies the permit numbers, said the slowing activity is just part of a normal market cycle.

The association, which earlier predicted that builders would pull permits for about 155,000 single-family homes this year, now expects the total to be about 138,000. That would be the fewest since 123,600 permits were issued in 2002, Bartolotto said.

"Builders have been cautious all through this. Since the early 1990s, they have always undershot the (construction) forecast that most people had for the year coming up. I don't see this as an issue."