U.S. builders started work on fewer homes in March after they sharply cut back on apartment construction. But builders requested the most permits for future projects in 3 1/2 years, suggesting many see the housing market improving over the next year.

The Commerce Department says builders broke ground at a seasonally adjusted annual pace of 654,000 homes last month. That's down 5.8 percent from February. Apartment construction, which can fluctuate sharply from month to month, fell nearly 20 percent. Single-family homebuilding was mostly unchanged.

Building permits, a gauge of future construction, rose 4.5 percent to a seasonally adjusted annual rate of 747,000. That's the highest level since September 2008.

Home construction and permits are at half the pace considered healthy by economists.