(Bloomberg News) Builders began work on fewer houses than forecast in December, capping the worst year on record for single-family home construction and signaling recovery in the industry will take time.

Housing starts dropped 4.1 percent to a 657,000 annual rate last month, reflecting a slump in multifamily dwellings, Commerce Department figures showed today in Washington. Building permits, a proxy for future construction, were little changed.

Four years after housing helped spark the last recession, falling home prices and ongoing foreclosures are hampering an industry-wide recovery. For all of 2011, work was started on 428,600 single-family homes as construction competed with the surfeit of previously owned dwellings.

"There's little reason for builders to ramp up residential construction in any strong way until we work off more of the existing supply of homes," said Sam Bullard, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who projected a rate of 660,000 starts for December. "There's still issues with foreclosures. We suspect prices are going to go down another 5 to 6 percent, but we do expect them to bottom this year and gradually pick up from there."

The median forecast in a Bloomberg News survey called for 680,000 starts at an annual rate. Estimates ranged from 625,000 to 723,000 in the Bloomberg News survey of 76 economists.

Jobless claims plunged last week to the lowest level since April 2008, another report today showed. First-time filings for unemployment benefits declined by 50,000 to 352,000, the Labor Department said.

Stock Futures

Stock-index futures held gains after the figures. The contract on the Standard & Poor's 500 Index climbed 0.5 percent to 1,308.8 at 8:46 a.m. in New York. The yield on the benchmark 10-year Treasury note rose to 1.93 percent from 1.9 percent late yesterday.

There were 606,900 homes started in 2011, up from the 587,000 in 2010 and reflecting gains in multifamily construction.

Permits fell 0.1 percent to a 679,000 annual rate in December.

Housing starts in fell in three of four regions last month, led by a 41.2 percent decline in the Northeast and a 17.6 percent drop in the West.

New projects involving multiple housing units helped sustained business at the end of 2011 as foreclosures turn more Americans into renters. Work on multifamily homes, such as apartments, townhouses and condominiums, fell 20.4 percent to 187,000 in December. For the year, multifamily starts totaled 178,300.

Single-Family Homes

Construction on single-unit dwellings increased 4.4 percent to a 470,000 rate in December from the prior month, the highest since April 2010. At the same time, demand for single-family homes has waned after three years with near 9 percent joblessness and a pipeline of distressed properties.

Homebuilders have signaled the new year will bring greater prospects than 2011. At Lennar Corp., the third-largest U.S. builder by revenue, new orders jumped 20 percent in the three months ended Nov. 30. Demand rose to 3,027 homes for the company's fourth quarter from 2,520 a year earlier.

"As I look ahead to 2012, I'm cautiously optimistic that we're seeing a real bottom form and that we will begin to see signs of recovery," Stuart Miller, chief executive officer the at Miami-based builder, said on a Jan. 11 conference call.

Builder Confidence

Confidence among U.S. homebuilders rose in January to the highest level in more than four years as sales and buyer traffic improved, according to the National Association of Home Builders. The Washington-based group's index of sentiment rose to 25 this month, reaching the highest level since June 2007. Nonetheless, readings lower than 50 mean more respondents still said conditions were poor.

Strong business for homebuilders would help propel U.S. growth, Federal Reserve policy makers have recently said. A Jan. 5 report from central bank Chairman Ben S. Bernanke called the weakness in the housing market a "significant barrier" to U.S. economic health. The next day Federal Reserve Bank of New York President William Dudley outlined strategies that could prevent foreclosures, ease refinancing of mortgages and get renters into lender-owned properties.