New-home construction dropped to all-time low in December, making 2008 the worst year for builders since 1959.

The Commerce Department reported Thursday that construction of new homes and apartments fell 15.5 percent to an annual rate of 550,000 units last month from previous low of 651,000 which was set in November 2008.

It was a much weaker showing than 610,000 which was what economists’ forecasted.

Last year, the number of housing units that builders started totaled set a record low. There was a 33.3 percent drop to 904,000 from the 1.355 million housing starts in 2007. The previous low was set in 1991.

The report also showed a 10.7 percent drop in building permit applications from the previous month, considered as a barometer of future housing activities, to a rate of 549,000 in December.

The Fed has is taking steps to provide relief to the homeowners and has slashed a key interest rate to a record low of between zero and 0.25 percent while the newly installed Obama administration is expected to push up efforts to curb the rising foreclosure.

For the mortgage rates, FreddieMac  reported lowest level drops in the past weeks except last week where the 30-year mortgages increased more than 5 percent.  Average rates on 30-year fixed mortgages increased to 5.12 percent this week from 4.96 percent last week, which was the lowest since Freddie Mac started its survey in April 1971.

Still, tighter lending standards, rising defaults, increasing number of foreclosures and fear about the economy and housing market's future have made buyers postpone buying.