The Commerce Department report Friday showed that construction of single-family homes, the most important segment of the market, fell. It dropped 0.9 percent to an annual rate of 531,000 units, after a strong 5.7 percent gain in February.
But permits for single-family construction, a barometer for future activity, were up. That raised some hopes that the recovery of the housing market will stay on track and help sustain the broader economic rebound.
Overall, construction rose 1.6 percent to a seasonally adjusted annual rate of 626,000. That was higher than the 610,000 level that economists expected. In addition, the government revised February's numbers to show a 1.1 percent gain rather than the initially reported drop of 5.9 percent.
Applications for building permits recorded a better-than-expected increase in March, rising 7.5 percent to an annual rate of 685,000.
Analysts are looking for any rebound in housing to be modest at best given the severe problems facing the industry. These include record home foreclosures and high unemployment, which robs potential buyers of the income they need to support a home purchase.
The weakness in single-family construction was offset by an 18.8 percent surge in the smaller multifamily sector, which rose to a seasonally adjusted annual rate of 95,000 units. Analysts do not expect this strength to continue given a multitude of problems facing commercial real estate at the moment. That includes high apartment vacancy rates and rising foreclosures of commercial properties.
Paul Ashworth, an economist at Capital Economics, noted that even with the March gain, the level of housing construction is still slightly more than one-fourth of where it was during the boom years in the middle of the decade. He said this burst of activity could well fade after home buyer tax credits expire at the end of this month.
By section of the country, all the strength in March came in the South. Construction activity there jumped 18.2 percent, the best advance in 10 months. Building activity plunged 28.4 percent in the Midwest and was down 8.3 percent in the Northeast and 2.1 percent in the West.
The National Association of Home Builders said Thursday its housing market index, which tracks industry confidence, jumped four points to a reading of 19 in April, the highest level since September.
Builders are reporting a pickup in sales and customer traffic as homebuyers rush to qualify for expiring tax incentives. The tax credits - $8,000 for new buyers and $6,500 for current owners - expire at the end of this month.
Many economists believe the tax incentives will boost the number of buyers now but lead to a drop in sales in the second half of the year.
Home sellers are also having to cope with banks tightening up on lending standards and a sizable supply of unsold homes.
The number of homes seized by banks jumped 35 percent in the first quarter from a year ago, RealtyTrac Inc. said Thursday. In addition, households facing foreclosure increased 16 percent in the same period and 7 percent from the last three months of 2009.
More homes were taken over by banks and scheduled for a foreclosure sale than in any quarter going back to at least January 2005, when the foreclosure listings firm began reporting the data.