The last year’s slump in the housing market caused the housing starts and building permits plunged in December. The drop was more than expected and analyst forecasted that there will be a full-year decline in new home construction that was the sharpest drop in 27 years.

Economists are worried that with the continuing housing slump with little signs of recovery will push the country into a recession. According to government data released Thursday, the full-year total for building permits posted the biggest drop in 33 years.

The Census Bureau reported that the pace of housing starts in December dropped 14 percent to a seasonally-adjusted annual rate of 1.01 million in December. Housing starts as measured by building permit applications are often used as a measure of builders' confidence in the market. Economists had forecast permits would fall to 1.14 million in the latest reading.

For 2007, housing starts plunged 25 percent to 1.35 million. That drop represents the biggest decline since the recession year of 1980 and the third largest fall since the Census Bureau started tracking this activity in 1959.

The dive in construction in December was more than what the economists had been expecting. This is evident in all parts of the country. Housing construction dropped 30.8 percent in the Midwest, 25.8 percent in the Northeast, 19.6 percent in the West and 3.3 in the South.

The housing correction is getting worse since the turmoil in financial markets hit last August. This has contributed to the losses of more than billion of dollars by the financial institutions and more defaults for subprime mortgages.

Those defaults have even added more problems by flooding the market with foreclosed houses. As a result of the abnormal increase in default rates, the banks have tightened their lending standards to better screen the borrowers. This has caused even greater damage to the new home construction.

As a result, builders have cut production and offer major incentives to sell more homes. Even with the move the market is still flooded with unsold inventories. Analysts said the big drop in construction in December showed builders are intensifying their efforts to reduce the over-supply of homes.

A survey of builder sentiment prepared by the National Association of Home Builders came in at the second-lowest level on record in January at a reading of 19.

David Seiders, NAHB chief economist believes that the construction activity would reach the bottom in spring and would improve slowly in the second half of this year. Other economists think that this would continue to slow down and would only climb after 2008.

As a consolation, the drop in housing starts would help control the bulging inventories of houses for sale.