The Commerce Department said starts tumbled 11 percent -- the largest drop since January 1994 -- to a seasonally adjusted 1.622 million unit annual rate.
While Wall Street analysts had anticipated a slowing in starts from the rapid pace of recent months, the drop was larger than they had expected. Economists polled by Reuters had forecast starts to fall to a 1.723 million unit annual rate, and permits to dip to a 1.730 million annual clip.
But in a sign the drop was largely related to severe winter weather in the month, permits for home building rose slightly and the number of homes under construction showed only a small decline. Permits gained 0.4 percent to a 1.786 million annual rate, while houses under construction at the end of the month fell 0.3 percent to a 1.052 million yearly pace.
Financial markets showed little initial reaction to the report, focusing instead on a possible war with Iraq and the Federal Reserve's policy setting meeting that began on schedule on Tuesday, despite a partial closure of the building during a police standoff with a farmer in downtown Washington.