Sales of new homes plunged in 2006 by the largest amount in 16 years as the nation's housing industry suffered through a sharp contraction after five boom years.

The Commerce Department reported that sales of new single-family homes totaled 1.06 million units for all of 2006, down 17.3 percent from the all-time high for sales of 1.28 million units set in 2005.

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After setting sales records for five straight years, sales of both new and existing homes suffered sharp declines last year, and that has caused ripple effects throughout the whole economy.

Last year's plunge in new home sales was the biggest drop since a 17.8 percent drop since the recession year of 1990. Sales of existing homes fell by 8.4 percent to an annual rate of 6.48 million units, it was reported Thursday. That was the biggest decline in the sale of previously owned homes since 1989.

Economists believe the housing industry will undergo further downward pressure this year as builders continue to slash production in an effort to get control of near-record levels of unsold homes.

However, there have been some signs that the steep slide in housing may be coming to an end. For December, new home sales were up 4.8 percent, the second strong monthly gain after a 7.4 percent rise in November.

While those increases were better than expected, analysts cautioned that they were influenced by unusually warm weather in those two months.

The median price of a new home sold in 2006 was up by 1.8 percent from 2005 but that price gain was far lower than the 9 percent jump in new home prices in 2005.

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