The number of housing projects builders broke ground on in January declined by the largest amount in nearly a year as bad winter weather played havoc with construction activity.

The Commerce Department (search) reported Wednesday that the number of residential buildings under way dropped to a seasonally adjusted annual rate of 1.90 million units, representing a sharp 7.9 percent drop from December's stellar pace of 2.07 million units. That had been the best pace since February 1984.

Although economists were predicting a slowdown in January from such lofty levels seen in December, last month's performance was weaker than the pace of around 2 million units that analysts were forecasting. Still, even with the decline, the pace of residential construction in January was still fairly brisk and was up 4.1 percent from the same month a year ago.

The housing market — throughout the economic slump and the recovery — has been the economy's shining star, providing a source of support for business growth. Economists predict housing activity will be less of a contributor to growth this year but that the sector will stay healthy.

Home sales (search) reached record high levels in 2003, powered by low mortgage rates that proved too good for buyers to pass up. Sales of both previously owned homes and new ones should have their second best year ever in 2004 — even with an expected rise in mortgage rates, economists said.

The average rate on a 30-year mortgage last week dipped to 5.66 percent. Some economists predict that benchmark rate will creep up to around 6.5 percent by the end of this year.

By region, housing construction in the Midwest plunged by 21 percent in January from the month before to an annual rate of 319,000 units. In the Northeast, residential activity clocked in at a pace of 148,000 units, a 14 percent drop from December's level. Housing starts in the South declined by 5.2 percent in January to a rate of 918,000 and in the West they dipped by 1 percent to a pace of 518,000.

The 7.9 percent decline reported for overall housing construction in January marked the largest decline since February 2003.

Builders feel that February might turn out to be lackluster, too.

Harsh winter weather in some parts of the country was partly to blame for builders expressing less optimism about sales prospects for February, according to a monthly survey by the National Association of Home Builders. The survey also found that builders are feeling less confident about sales prospects over the next six months.

Even so, builders believe the housing market is in good shape.

"The new-homes market is still doing well, thanks to excellent financing conditions, great buyer demographics and improving economic indicators," said the association's president Bobby Rayburn, a builder from Jackson, Miss. "But many builders reported drop-offs in buyers visiting model homes in early February and a large percentage attributed those declines to bad weather," he added.