The prolonged slump in housing pushed construction of new homes in 2007 down by the largest amount in 27 years with the expectation that...

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WASHINGTON — The prolonged slump in housing pushed construction of new homes in 2007 down by the largest amount in 27 years with the expectation that the downturn has further to go.

The Commerce Department reported Thursday that construction was started on 1.353 million new homes and apartments last year, down 24.8 percent from 2006.

It was the second biggest annual decline on record, exceeded only by a 26 percent plunge in 1980, a period when the Federal Reserve was pushing interest rates to post-World War II records in an effort to combat an entrenched inflation problem.

Many economists think the slump in housing will rival the dive in the late 1970s and early 1980s when housing construction fell for four straight years before beginning to recover after the severe 1981-82 recession. Last month, construction fell by a bigger-than-expected 14.2 percent.

Meanwhile, home sales in California, one of the hardest-hit states in the nation by the mortgage crisis, plummeted 41.4 percent to 25,585 compared with December 2006.

Some economists think the housing troubles will push the country into another recession as consumers are staggered by the steep drop in housing, which has pushed home values down in many parts of the country. Consumers also have been faced with rising mortgage defaults and a severe credit crunch that has made loans harder to obtain.

Recent reports have increased those worries, including news that unemployment last month shot up to 5 percent.

The drop in construction last month was bigger than economists had been expecting and reflected weakness in all parts of the country. Housing construction fell by 30.8 percent in the Midwest and was down 25.8 percent in the Northeast and 19.6 percent in the West. However, the decline in the South was 3.3 percent.

Economists said the weakness showed that the housing correction was getting worse since the turmoil in financial markets hit in August.

“Builders have finally thrown in the towel,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics. “This is a precondition for recovery as it will eventually reduce the inventory overhang. But there is a long way to go.”

Last month, housing starts totaled 1.01 million units at an annual rate. In an ominous sign for the future, applications for building permits fell by 8.1 percent. That marked the seventh consecutive monthly decline and reflected the fact that builders have been slashing production plans to deal with a glut of unsold homes.