The Commerce Department said on Friday groundbreaking dropped 9.8 percent to a seasonally adjusted annual rate of 999,000-unit pace. It was the largest percentage decline since April.
Economists polled by a news agency had expected starts to fall to a 990,000-unit rate in December. For all of 2013, starts increased 18.3 percent to an average of 923,400-units.
Groundbreaking for single-family homes, the largest segment of the market, fell 7.0 percent to a 667,000-unit pace in December. Starts for the volatile multi-family homes segment declined 14.9 percent to a 332,000-unit rate.
Starts in the Midwest tumbled 33.5 percent, suggesting cold weather might have weighed on home building last month.
While frigid weather probably dampened activity, some of the slowdown last month was also payback after November's eye-catching gains. Residential construction has been on the rise after a brief lull last year in the wake of a run-up in mortgage rates.
Increasing household formation and a tight supply of houses has been boosting home building, which in turn is supporting the labor market.
Permits to build homes fell 3.0 percent in December to a 986,000-unit pace. They were weighed down by a 4.8 percent drop in permits for single-family homes. Multifamily sector permits were flat.