The Commerce Department said housing starts fell 10.8 percent to a seasonally adjusted annual rate of 510,000 units, the second lowest on records dating back to 1959, from February's downwardly revised 572,000 units.
House starts in the West region, which has been hit hard by the housing slump, fell 26.3 percent to a record low 73,000 rate.
Analysts polled by Reuters had expected an annual rate of 540,000 units for March.
New building permits, which give a sense of future home construction, dropped 9 percent to a record low 513,000 units, from 564,000 units in February. That was well below analysts' estimates of 550,000.
Building completions rose 3.5 percent to 824,000 units.