Applications for new building permits, a gauge of future activity rose 11 percent to an annual rate of while construction fell last month, a government data showed Wednesday.

Construction of new homes and apartments dropped to an annual rate of 557,000 in December, down 4 percent from the revised November rate of 580,000, the Commerce Department said.

"Builders continue to be nervous about the employment situation and the number of foreclosures out there competing with them," said David Crowe, chief economist at the National Association of Home Builders. Another problem, Crowe noted, is that builders have seen their financing for new projects dry up steadily over the past 18 months.

But starts were up 0.2 percent versus the 556,000 rate in December 2008. It was the first year-over-year improvement since March 2006, when starts increased 5.6 percent.

Contributing largely to the decline in new home construction was the 6.9 percent drop in single-family activity, which offset gains in the multi-family sector.

The number of building permits issued during December rose 10.9 percent to a seasonally adjusted annual rate of 653,000 which is the highest level since October 2008.