Home starts in the U.S. last year posted the biggest decline since 1980, according to year-end figures released Thursday by the U.S. government.

The U.S. Commerce Department said there were 1.354 million units started last year. That was the lowest level since 1993's 1.288 million units.

The 24.8 per cent drop seen from 2006 to 2007 was the biggest decline since 1980, when the Federal Reserve was raising interest rates to fight inflation.

The year ended on a weak note. For December, starts were off by 14.2 per cent at an annual pace of 1.006 million units. That missed the pace of 1.14 million units that economists had been expecting.

The outlook for home construction remains cloudy, as building-permit activity is also weak. Building permits fell in December to an annualized pace of 1.068 million units, the weakest rate since May 1993.

The U.S housing market has been battered by rising defaults and foreclosures, weak sale prices and rising levels of unsold inventories. Many of the problems stem from the subprime mortgage sector, where many people have been left unable to pay their home loans when they reset to higher interest rates.

Michael Gregory, senior economist with BMO Capital Markets senior economist, said the depth and duration of the housing market contraction "have now reached critical levels and an outright economy-wide recession is a real possibility…."

"While housing and credit conditions were the catalysts, the risk is that a classic consumer-led downturn is unfolding," Gregory said.