Starts on new homes fell 5.8% in March to 654,000 units, compared to 694,000 in February, the government said Tuesday.

Analysts surveyed by MarketWatch anticipated stronger home construction levels of 703,000 starts for March, but activity levels remained well below that point. 

Analyzing the report, economists for Econoday said, "Housing starts dipped 5.8% in March after decreasing 2.8% in February. The March pace of 0.654 million units came in lower than market expectations for 0.700 million and is up 10.3% on a year-ago basis. In March, weakness was led by the multifamily component although single-family edged down."

Econoday noted that housing permits showed signs of "moderate strength."

"Permits gained 4.5%, following a 4.8% increase in February," the research firm said. "The latest figure of 0.747 million units posted above the consensus estimate of 0.713 million. Strength was in the multifamily component."

The disappointing report shows the real estate market facing the headwinds of economic uncertainty and tight lending, real estate executives say. 

"The report shows a housing industry that can’t get going," said Mitchell Hochberg, principal with Madden Real Estate Ventures in New York. "With a lack of lending taking place and an absence of job growth it’s hard to gain momentum."

Paul Dales, U.S. senior economist with Capital Economics, saw a few silver linings in the report, but not enough to take the edge off the disappointing housing starts update. 

"It's a bit more encouraging that single-family starts were broadly unchanged last month, while multifamily starts fell by 17% month-to-month. And total building permits did rise by 4.5% month-to-month, to 747,000 from 715,000," Dales said.

"Nonetheless, these data are still disappointing, especially when the unseasonably warm weather should have allowed builders to work more. Residential investment probably still rose in the first quarter, but it may well decline in the second."

Analysts with Keefe, Bruyette Woods (KBW) noted that "recent national housing data has appeared to lag more optimistic expectations embedded in housing stock prices. New home construction and most housing data remain subdued."

KBW added, "Anecdotal evidence and mortgage purchase application data suggest continued choppy selling conditions although the non-seasonally adjusted purchase application index has recently risen. Mortgage credit remains a long-term constraint."