At first glance, the sequential 11.9% decline in March housing starts to 947,000 reported by the Commerce Department on Wednesday was welcome news, particularly since it marked a 36.5% drop from March of last year and came alongside a drop in housing permits to a 17-year low at 927,000. Any decline in starts and future starts that is greater than a decline in sales should help put the inventory of homes for sale back into balance.

Single-family starts were down less sharply, with a 5.7% decrease to 680,000. Similarly, single-family permits were off 6.2% to 606,000.

Regionally, compared to February, starts in March were down 8.5% in the Northeast, 21.4% in the Midwest, 12.6% in the South and 5.7% in the West. However, single-family starts were up 1.6% in the Northeast, down 16.8% in the Midwest, basically flat at down 0.8% in the South and down 11.8% in the West.

Permits, on the other hand, were up 3.8% for all housing and down 12.3% in the Northeast, down 10.6% and 4.2% respectively in the Midwest, up 0.4% and down 5.1% in the South and down 20% and 7.5% in the West.

The numbers generated mostly positive responses on Wall Street, among them a research note from Wachovia Securities' Carl Reichardt that said, in part, "We continue to believe that sharply lower starts and permit activity are supporting positives for eventual reinvestment in homebuilding equities." However, he added, "As recent sales field data has shown, a compressing new supply dynamic isn't a solely sufficient one to stimulate demand."

Another analyst, Stephen East of Pali Research, spotted a negative in the numbers for existing construction. On a year-over-year comparison, single family homes under construction were down 26.2% nationally, down 16% in the Northeast, down 29.5% in the South and down 28.9% in the West, compared to declines in starts of 30.4% in the Northeast, 51.5% in the Midwest, 40.9% in the South and 48.4% in the West.

"Single-family housing under construction...implies that builders continue to aggressively utilize bank lines (while they still exist) to convert land to cash," wrote East in his blog. "Moreover, a 22% [month-to-month] increase in completions in the West is very disappointing. This lack of discipline implies continued difficulty for pricing as inventory is liquidated."

East did take a positive macro view, however. "Overall, we note that single-family sales, starts and permits have declined 57.5%, 62.9% and 66.3% from their respective peaks of 1.389 million (July '05), 1.837 million (January '06) and 1.798 million (September '05). We like the equilibrium builders have shown since the peak, and given historical drops of past housing recessions, we are likely within striking distance of sales bottoming in this recession, so we like the odds that inventory levels won't deteriorate meaningfully from here."