Groundbreaking decreased 8.8 percent to a seasonally adjusted annual pace of 1.09 million units, the lowest level since October, the Commerce Department said on Tuesday. February's starts were revised up to a 1.19 million-unit rate from the previously reported 1.18 million-unit pace.

Economists polled by Reuters had forecast housing starts slipping to a 1.17 million-unit pace last month.

The dollar fell against the euro on the report, while prices for U.S. government bonds were little changed.

Last month's drop in groundbreaking pointed to a moderation in housing market activity and mirrors other data such as business spending, trade and retail sales that have suggested economic growth stalled in the first quarter.

The economy has been slammed by a strong dollar and weak global demand, which have weighed on exports. Lower oil prices are also a drag as they have undercut profits of energy firms, causing a sharp decline in spending on capital projects.

First-quarter gross domestic product growth estimates are currently as low as a 0.2 percent annualized rate. The economy grew at a 1.4 percent rate in the fourth quarter.

Still, housing market fundamentals remain strong against the backdrop of a buoyant labor market, which is increasing employment opportunities for young adults, and in turn boosting household formation.

Last month, groundbreaking on single-family housing projects, the largest segment of the market, tumbled 9.2 percent to a 764,000-unit pace, the lowest since October.

Single-family starts in February touched their highest level since October 2007. They fell in all four regions last month, sliding 4.9 percent in the South, where most home building takes place. Single-family started plunged 21.2 percent in the Midwest.

Housing starts for the volatile multi-family segment declined 7.9 percent to a 325,000-unit pace. Starts for buildings with five units and more fell to their lowest level in a year.

Building permits dropped 7.7 percent to a 1.09 million-unit rate last month, the lowest level since March last year.

Permits for the construction of single-family homes decreased 1.2 percent in March after scaling a more than eight-year high in February. Multi-family building permits plunged 18.6 percent, with approvals for buildings with five units or more falling to their lowest level since August 2013.