(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.

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