WASHINGTON (Reuters) - Groundbreaking on new U.S. home construction fell more than expected in December to its lowest in over a year, suggesting the battered housing sector remains a major roadblock to economic recovery.

U.S. housing starts dropped to an annual rate of 529,000 units, the Commerce Department said on Wednesday, down from November's 553,000 and well below forecasts around 550,000 in a Reuters poll. At current levels, starts account for less than a quarter of their boom-time peaks.

At the same time, building permits soared, a hint of optimism about future demand. Permits jumped 16.7 percent to 635,000, far above a median forecast of 560,000 and the biggest jump since June 2008. Changes to state building codes may have boosted permits in California, Pennsylvania and New York, the report said. For example, permits surged 80.6 percent in the Northeast.

Housing was at the epicenter of the worst financial crisis in generations, which began when banks started to take a hit from rising defaults in the mortgage sector in the summer of 2007. (Reporting by Pedro Nicolaci da Costa; Editing by Andrea Ricci)