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NEW YORK (CNN/Money) -
The news was bad: Housing starts plunged 17.6 percent in March, marking their steepest drop in more than 14 years, a Commerce Department report showed Tuesday.
But analysts weren't ready to use that indicator to call an end to the housing boom just yet.
"You have to realize that [starts] declined from a level in February that was a 20-year high," David Joy, capital markets strategist for American Express Financial. "If you look at the average for the first quarter, it is still the highest rate in over 20 years."
The weather was another factor, according to Dave Seiders, chief economist with the National Association of Home Builders. He notes that builder permits for March, though down 4 percent, were still fairly strong and an indication that demand is still healthy. Since builders don't tend to take out costly permits unless they plan to use them, a big discrepency between starts and permits can point to poor weather holding up construction.
"I was surprised [by the decline in starts]," said Seiders, who like most economists was expecting housing starts to decline between 4 percent and 5 percent. "But I'm not panicked when I look at the rest of the report."
Some of the decline, however, may be attributable to builders turning a little more cautious. One concern among builders, Seiders said, is that speculators are buying in new housing developments, which drives demand in the short term but could show up as excess supply down the road. "If the investor community should get worried, we could have a wholesale tumbling."
While low mortgage rates have supported the housing sector, industry analysts have expected housing starts and existing home sales to edge back from 2004's record levels.
Assuming that much of March's decline can be explained by the weather, Seiders is expecting that housing starts will be up in April. "I have always considered that first quarter would be the high point," he added. "I'm forecasting a 1.5 percent total decline for the year as a whole."
Single-family housing starts slid 14.4 percent to a 1.539 million unit pace, the largest drop since January 1991, when they fell 19.6 percent. Starts on structures with five or more units also tumbled, falling 31.6 percent and marking the biggest decline since a 38.3 percent drop in March 2000.
Housing starts fell 29.3 percent in the U.S. Midwest, 18.0 percent in the South, 12.7 percent in the West and 3.6 percent in the Northeast, the Commerce Department said.
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