WASHINGTON -- U.S. home building retreated in December amid a drop in apartment construction, a sign the housing market's recovery will continue to be rocky.

Home construction last month decreased 4.1% to a seasonally adjusted annual rate of 657,000 from November, the Commerce Department said Thursday.

The results were worse than forecast. Economists surveyed by Dow Jones Newswires expected housing starts would rise by 0.6% to an annual rate of 689,000.

Last month's decline was driven by a 20.4% drop in construction of multifamily homes with at least two units, a volatile part of the market. However, construction of single-family homes, which made up about 72% of housing starts, rose by 4.4%.

For all of 2011, the building industry broke ground on about 607,000 new homes, the Commerce Department said. That was up 3.4% from 2010.

The data also showed newly issued building permits, a gauge of future construction, fell 0.1% in December from a month earlier to an annual rate of 679,000. Those results were in line with expectations, as permits in December had been projected to remain unchanged at an annual rate of 680,000.

The report gave mixed signals about the housing sector, which is gradually healing after a collapse in prices that started 5 1/2 years ago. A trade group report earlier in the week said home builders' confidence this month rose to its highest in more than four years, with traffic from prospective buyers rising.

Mortgage rates have been hovering around the lowest recorded levels and employers have picked up hiring, causing some home buyers to be more confident about their future prospects. While unemployment in the U.S. remains high, the jobless rate in December fell to its lowest since February 2009.

Yet home sales are far below healthy levels, as are housing starts -- considered to be a pace of around 1 million to 1.5 million. Prices have continued to fall, and the new-home market faces stiff competition from a steady stream of foreclosures and other previously occupied homes.

Lower prices make owners feel less wealthy, which is bad for consumer spending, and tend to discourage buying and selling in hopes for a better deal down the road.

The Commerce Department data showed that housing starts fell in three out of four U.S. regions. They fell 41.2% in the Northeast, 17.6% in the West and 3.0% in the South. Construction soared in the Midwest, rising by 54.8%.

Actual housing starts, calculated without seasonal adjustments, fell to 41,800 in December from an upwardly revised 51,900 in November. Lumber and commodities markets watch those numbers closely to gauge demand.

The Commerce report can be found at http://www.census.gov/const/newresconst.pdf

Copyright (c) 2012 Dow Jones & Company, Inc.

Copyright © 2012 Dow Jones Newswires