The home building market continued to improve in March. Private building permits rose to 685,000 from 637,000 in February, a 7.5% increase, according to today's Commerce Department report (.pdf). Last month's number was also 34.1% higher than a year earlier. Private housing starts -- indicating new construction begun -- were also up in March, rising to 626,000. That beat February's number by 1.6% and March 2009 by 20.2%. Both of these numbers are the highest seen since 2008.

Here are two charts that provide some historical perspective for both figures:

new permits 2010-03.PNG

housing starts 2010-03.PNG

As these charts show pretty clearly, the new home construction market has improved recently, but still has a very long way to go to approach even pre-bubble levels.

Still, these two measures rising in March would appear to be good news, since they indicate  builders sense increased demand for new homes on the part of Americans. This is particularly positive for the labor market. Construction has lost 2.1 million jobs since the height of the housing boom. More home building means that some of those jobs will return.

Yet new construction doesn't necessarily stabilize the housing market; in fact, it may weaken it. For home prices to rise, inventory must decline. That will occur as purchases of existing homes exceed those that hit the market. Foreclosures are still a huge problem, as they reached a new high in March.

But new home building increases housing inventory. For every new home bought during a month, one fewer existing home will be purchased. That slows the decline in housing inventory and will prevent housing prices from rising as much, if at all. So while increased building of new homes might be good for the labor market, it's bad for the housing market in this environment.

Note: All numbers above are seasonally adjusted.