March housing starts rise but on strength of cheaper multifamily homes

March housing construction rose for the second straight month, up more than expected and hitting its highest level in 16 months, but the gain came almost entirely from new multifamily homes, which make up only 20 percent of the market.

Construction of single-family homes -- the largest segment of the market -- fell 0.9 percent in March to an annual rate of 531,000, the Commerce Department said today.

Overall construction rose 1.6 percent last month to a seasonally adjusted annual rate of 626,000, outpacing the 610,000 figure forecasts predicted. The Commerce Department also revised the February number rather radically, changing it from a 5.9 percent drop in housing starts to a 1.1 percent gain.

Construction of new multifamily homes in March soared nearly 19 percent last month.

Permits for single-family homes actually rose in February, which suggests future growth in housing starts. Applications for all building permits rose 7.5 percent last month to an annual rate of 685,000.

Analysts believe the bump in housing starts is attributable the federal government's home-buyer credit, which expires at the end of this month.

"Within weeks though we'll be able to see the natural forces of supply and demand at work in the housing market without the influence of the distortion of some major government incentives," writes Miller Tabak equity strategist Peter Boockvar. "Overall, the U.S. economy is definitely in a better place but juice, the steroid juice of cheap money is again having its influence and we can only hope that we can make the transition without it over the next few years better than we did last time."

Today's housing starts news stands in contrast to news earlier this week reporting rising foreclosures in the first quarter of this year.