The Commerce Department said Friday that builders broke ground last month at a seasonally annual rate of 999,000. That's 9.8 per cent lower than November's pace of 1.12 million, which was the fastest in five years.
For the year, builders started 923,000 homes and apartments, up 18.3 per cent from 2012. It was the fourth straight annual gain and the strongest since 2007, when 1.36 million homes were started.
The housing market has been recovering steadily over the past year, helping to boost economic growth and create jobs. But a rise in mortgage rates from record lows reached a year ago have started to weigh on those gains.
For December, construction of single-family homes, which makes up roughly two-thirds of homebuilding, fell 7 per cent to an annual rate of 667,000. Construction of apartments, which can be more volatile, dropped 14.9 per cent to a 332,000 rate.
Applications for building permits, considered a good sign of future activity, fell 3 per cent in December to a rate of 986,000. Single-family permits fell 4.8 per cent. Permits for apartments were unchanged.
Construction activity in December fell 33.5 per cent in the Midwest and 12.3 per cent in the South. Construction rose 15 per cent in the West and was unchanged in the Northeast.
Mortgage rates are roughly a percentage point higher than in the spring. Still, they remain low by historical standards. The average rate on a 30-year mortgage fell to 4.41 per cent this week. That's down from a peak of 4.6 per cent in August.
U.S. homebuilders remain generally upbeat ahead of the spring home-buying season.
The National Association of Home Builders/Wells Fargo builder sentiment index slipped to 56 in January, down slightly from a 57 reading in December. Readings above 50 indicate more builders view sales conditions as good rather than poor. Even with the small dip, the overall index remains in positive territory and is nine points higher than it was a year ago.
The spring buying and selling season kicks off next month, traditionally the time of the year that sets the tone for residential hiring and construction. Many builders, particularly smaller firms, sell homes that will take months to build.
Though new homes represent only a fraction of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to data from the homebuilders association.