U.S. housing starts plummeted 10.8 percent in March, the U.S. Commerce Department announced Friday. New home construction experienced a setback after a large gain in February had sparked optimism in some circles that a housing sector recovery was on its way (pdf).

Housing starts for new homes fell to a 510,000 annual rate in March -- the weakest level since the 1940s. Housing starts have now declined 48 percent in the past year and about 78 percent since the sector's peak was achieved about three years ago.

Economists surveyed by Bloomberg News had expected housing starts to total a 570,000 annualized rate in March. Also, February's large increase in housing starts was lowered to a less large 16 percent from the previously released 22 percent.

In March, housing starts increased 6.3 percent in the Northeast, rose 15.9 percent in the Midwest, dropped 16.8 percent in the South and fell 26.3 percent in the West.

No housing turnaround yet

Ryan Sweet, senior economist for Moody's Economy.com in Pennsylvania, was not one of those economists who got caught up in the February housing start optimism.

"Market fundamentals do not support a near-term recovery," Sweet told Bloomberg News Thursday. "While spring has brought some positive signs on the housing front, a rebound is not in the foreseeable future."

Meanwhile, building permits plunged nine percent to a 513,000 annual rate, the lowest on record, the Commerce Department said. Building permits have now declined 45 percent in the past 12 months.

Also in March, multi-family housing starts plummeted 29 percent, after rising 62 percent in February. Single family home starts were unchanged at their 358,000 rate, slightly above the 356,000 record low pace set in January.

Housing Analysis: The March housing start data is a classic case study concerning why investors -- and home buyers, for that matter -- should evaluate the housing market based on three or four months of data, not just one. The U.S. Commerce Department cautions that one-month housing data is volatile and subject to revisions. Last month's rise suggested an upturn in housing starts; in fact, when viewed from a longer-term perspective, housing starts have basically been in a down trend for more than two years, with a few outlying months and periods.

Bottom Line: Builders continue to do what you'd expect them to do, which is cut back dramatically in the face of a weak economy, job losses and less-than-ideal conditions for borrowers. At some quarter in the future, as foreclosures trend lower, and as job losses cease, home demand will be sufficient, the excess housing supply will have vanished, and it will make sense to start building more homes again.


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