The number of housing starts in December fell 16 percent as the home building industry registered its weakest annual performance in five years, the government reported yesterday.
The December drop, to an adjusted annual rate of 1.374 million units, was the sharpest monthly decline since March 1984, when construction slowed by 26 percent.
Last month's total housing starts were 24 percent below the December 1986 rate, the Commerce Department said.
According to the department's preliminary estimate, the nation's housing starts totaled 1.617 million in 1987, compared with 1.805 million in 1986.
Analysts said the December figures offered further evidence of a long-term slowdown in housing, but rejected the notion that the numbers signaled a coming recession.
The report "is a further indicator that housing starts peaked and have been falling," according to economist Leonard J. Santow. "I don't consider the numbers alarming at all," he said.
White House spokesman Marlin Fitzwater said the administration was "disappointed" by the sharp downturn in what is considered a leading indicator of the nation's economic health, but he said, "The economy remains strong."
He said, "We're disappointed that it dropped, but I wouldn't try to prognosticate on the basis of it. All other economic indicators remain strong."
The main source of the decline was a dramatic plunge in construction of buildings with five or more units. While single-family housing starts declined 8 percent to an annual rate of 1.023 million, starts in the historically volatile multiunit sector declined by 37 percent.
Industry observers, who had predicted a less precipitous decline in multiunit housing starts, said the size of the drop was an aberration. Starts in that sector had risen 31 percent in November to an annual rate of 478,000, above 1986 levels.
But builders generally agree that construction of multifamily housing is slowing. After several robust years, the industry is responding to an adverse tax climate, a mounting surplus of units and a confused economic outlook, economists said.
James Christian, chief economist at the U.S. League of Savings Institutions, suggested that the housing industry's caution may have been partly caused by a third-quarter increase in rental unit vacancies that was reported in October. Rental unit vacancies rose to 8.1 percent in the third quarter from 7.4 percent in the second quarter.
And while housing starts rose in November, analysts said last month's decline may have been a delayed -- and indirect -- response to the stock market fall in October. Confronted with a cacophony of economic forecasts, many negative, builders may be playing a waiting game, the analysts said. "It may very well be that they've backed off and said, 'Let's wait until the dust settles,' " Christian said.
Interest rates on home mortgages, which declined during November, rose in December, also contributing to the drop. Rates on 30-year fixed-rate mortgages exceeded 10.6 percent throughout December.
A number of economists said housing starts are likely to rebound somewhat in January, but no major change is expected before the spring. According to the Commerce Department, the number of housing units authorized by building permits in December dropped 9 percent, to 1.34 million, offering a glimpse of things to come.
Construction in the South, which includes the District, Maryland and Virginia, dropped 15 percent last month from November, compared with declines of 7.4 percent in the Midwest, 12.3 percent in the Northeast and 26.4 percent in the West.
"It's lower than we thought, but it's not time to press the panic button," said Jay Shackford, a spokesman for the National Association of Home Builders.
Kent W. Colton, executive vice president of the Washington association, said it is predicting about 1.5 million housing starts this year, or about the average of the November and December rates. Colton said his organization expects multifamily housing starts to continue their downward trend, lagging well behind single-family construction.