WASHINGTON - New-home sales fell in 2006 by the largest amount in 16 years - but they rose for a second straight month in December, raising hopes that the worst of the housing downturn was coming to an end.

The Census Bureau reported yesterday that sales rose 4.8 percent last month, following a 7.4 percent rise in November.

Those two increases, however, were not enough to salvage the year, with total sales of 1.06 million units down 17.3 percent from 2005's total. That marked the biggest decline since a 17.8 percent plunge in the housing downturn of 1990.

In the Northeast, new-home sales last year totaled 64,000 units, down 21 percent from 2005.

The housing bust is occurring after a boom in which sales of both new and existing homes set records for five consecutive years. The lowest mortgage rates in four decades powered a surge in sales that was bolstered by investors' making purchases in hopes of turning around and reselling the properties for quick profits.

Analysts attributed the big declines in 2006 to a cooling of that speculative boom. That reversal has given the housing industry its toughest downturn since the recession of 1990.

Jeffrey P. Orleans, chief executive officer of Orleans Homebuilders Inc. in Bensalem, Pa., said yesterday that the industry was still dealing with a large backlog of homes, but that "the good locations are still moving."

He said that the geographic markets that boomed the most - such as Las Vegas and Phoenix and parts of Florida - have fallen the hardest and that the Philadelphia region was stabilizing.

"Most of the extra inventory has been eaten up . . . 2007 will not be a boom year, but it won't be horrible," Orleans said.

The nationwide housing slowdown trimmed 1.2 percentage points off overall economic growth in the July-September quarter. Analysts are looking for an equally severe hit in the final three months of the year, with housing expected to be a continuing drag in the first half of 2007.

The downturn has meant a break for home buyers, as price gains have slowed considerably from the double digits of the boom years.

The median price of a new home sold in 2006 rose 1.8 percent to $245,300. That was far below the 9 percent price gain of 2005.

David Seiders, chief economist of the National Association of Home Builders, said he looked for home prices to continue to be depressed in 2007 as builders scrambled to reduce near-record levels of unsold homes.

He said his organization's January survey of builder sentiment showed continued extensive use of incentives to clear the backlog, with 60 percent of builders surveyed offering optional items such as kitchen upgrades or decks at no charge. That's up from 41 percent at the beginning of 2006.

Other incentives include paying closing costs, which 52 percent of builders said they were doing, up from 31 percent a year ago, and paying purchasers' financing points on loans, something 30 percent of builders in the survey said they were doing.

Seiders said he looked for new-home sales to be essentially flat for 2007. He predicted that new-home construction, which fell 12.9 percent last year, would fall an additional 14 percent in 2007.

The cutback in building has led to thousands of job layoffs in the construction industry.

Inquirer staff writer Bob Fernandez contributed to this article.