“This reflects a characteristically volatile multi-family sector rather than renewed weakness, and we expect homebuilding volumes to rise further later this year,” wrote Paul Diggle of Capital Economics.

Housing starts fell 9.8 percent, but the drop was entirely in apartment construction, which accounts for 30 percent of all residential construction activity, according to the U.S. Commerce Department. Multi-family starts fell by 26.2 percent in June compared to May. Single family housing starts fell by just 0.8 percent month-to-month.

(Read More: Map: Tracking the US Real Estate Recovery)

“Should we be concerned? Not yet,” wrote Patrick Newport of IHS Global Insight. “Builders are still not putting up enough homes. Far from it. By our estimate, underlying demand is running close to 1.4 million. Meanwhile, housing completions in July were 755,000 [annual rate], while housing permits were 911,000.”

Article source: http://www.cnbc.com/id/100893375

After a slew of positive readings on the nation’s housing recovery, sales of newly built homes in October were a big disappointment.

Despite the big public builders reporting big jumps in new orders and builder confidence positively leaping to the highest level since 2006, sales just didn’t compute, and even September’s numbers were revised down.

“The recovery in new home sales is looking a little weaker than we were previously led to believe,” writes Paul Diggle of Capital Economics.

But Diggle points out the positives, specifically that the time between a completion and a new home sale has been falling dramatically, from over 14 months in late 2009 to just over 6 months today. The average historically is five months.

“That drop strikes us as another sign that buyer confidence is improving,” adds Diggle.

But is it improving as much as builder confidence?

“This was a disappointing update,” writes Patrick Newport of HIS Global Insight.

“It indicates that demand for single-family homes is only slowly picking up, not accelerating, as the data previously showed. It also indicated that builders may have jumped the gun a little by accelerating the pace of construction of single-family homes.

(Read More: Cities With the Most Affordable Homes)

A big concern for home builders now is the looming fiscal cliff. The housing recovery depends on the economic recovery and continued improvement in the jobs picture. There is also great concern that the mortgage interest deduction could fall victim to the cliff. That’s why housing lobbyists have upped their budgets this year to $30 million from $27 million in 2011, according to the Center for Responsive Politics. The National Association of Realtors leads by far with a record $25,982,290 spent on lobbying so far.

(Read More: Why the ‘Fiscal Cliff’ Is Kryptonite to Entrepreneurs)

Fears of the fiscal cliff could be impacting potential buyers already. The new home sales monthly number from the U.S. Department of Commerce is based on signed contracts, not closings, so it is a clear gauge of what potential buyers are feeling right now.

(Read More: How ‘Fiscal Cliff’ Could Affect Mortgage Interest Deduction)

“It is making me nervous for sure to have such uncertainty over such a traditional expectation, the mortgage deduction,” says Stephen Paul, of Mid-Atlantic Builders, a Maryland-based company. Paul says he hasn’t seen any cancellations over it yet, but it has come up in conversation plenty.

It is just one more uncertainty that this recovery doesn’t need. All signs are pointing to big gains in the housing market for 2013. Those expectations, however, must be tempered with a dash of perspective yet again. Peter Boockvar of Miller Tabak maps it out well:

“While the housing industry is recovering, new home sales have trended between 360k and 370k for the last 6 months, still 73 percent below the bubblicious peak in July ’05 and not too far above the trough seen in 1982 and still below the bottom seen in the 1991 recession. On one hand, there is plenty of room for continued improvement but on the other, the healing process will take a lot of time and will likely be in fits and starts as recoveries from the aftermath of bubbles typically are.”

SECTOR WATCH: US Home Builders

—Toll Brothers
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—DR Horton
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—Hovnanian Enterprises
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—PulteGroup
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—Ryland Group
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—Lennar Corp
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—Beazer Homes USA
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—Meritage Homes
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—KB Home
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