A Record Year For New Homes In 2005

A carpenter uses a nail gun to assemble the frame of a home in a new Del Webb developement in North Ridgeville, Ohio on Tuesday, June 14, 2005. The Commerce Department reported Thursday, June 16, 2005, construction of new homes rose 0.2 percent in May as the housing market continued its boom in response to low mortgage rates.(AP Photo/Amy Sancetta)
Construction of new single-family homes surged to an all-time high in 2005 but construction activity fell sharply in December, sending a signal that the nation's long housing boom could be cooling off.

The Commerce Department reported that construction of new homes and apartments fell by 8.9 percent last month, the biggest decline in nine months.

Even with the December weakness, construction was started on 2.064 million single-family homes and apartments last year, the second-highest level on record, exceeded only by 2.356 million units built in 1972. Construction of just single-family homes set a record last year of 1.714 million units, up 6.4 percent from the previous record set in 2004.

In another report, the Labor Department said that the number of Americans filing for unemployment benefits fell to 271,000 last week, an unexpectedly large drop of 36,000 from the previous week, indicating strength in job markets.

Housing construction has boomed in recent years as builders have rushed to meet soaring demand triggered by the lowest mortgage rates in a generation. Sales of both new and existing homes have been at record levels for five straight years.

However, economists are forecasting that construction and sales activity will slow this year under the weight of rising mortgage rates. The big question is whether the slowdown will be gradual or something more severe.

Most economists are forecasting a gradual slowing of sales with a drop of around 6 percent this year. They believe price gains will slow from the double-digit pace of recent years but they are not forecasting a precipitous drop in home prices.