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Housing in recovery, but not its stocks

A worker uses a saw on a roof while building a new home at the Toll Brothers Inc. Baker Ranch community development in Lake Forest, California, Feb. 11, 2014.
Patrick T. Fallon | Bloomberg | Getty Images
A worker uses a saw on a roof while building a new home at the Toll Brothers Inc. Baker Ranch community development in Lake Forest, California, Feb. 11, 2014.

Stocks of some of the nation's publicly traded home builders are hovering in correction territory. This, despite higher sales of newly built homes in February and satisfactory, if not stellar, quarterly earnings for most of the companies. Housing starts are still running well below historical norms, but are still about twice what they were at the trough of the construction crash in 2009.

"It seems like everything is set up very nicely for the housing market to have a solid year, not a boom that we can't replicate, like we saw in the first half of 2013, but I think it's just about right-sizing people's expectations," said analyst Ivy Zelman, CEO of Zelman Associates.

Last year, Zelman famously declared the market was in "housing nirvana." Then last month, she admitted nirvana had taken a pause but was "around the corner" yet again. She said fundamentals are still good, and she is surprised at the bearishness among traders.

"We think housing starts will be definitely up at least double digits. We know the builders are bringing a significant amount of new product to market," Zelman said. But, she added, "I guess the expectations have just gotten so negative, and I think that it's piling on bearish sentiment with [Federal Reserve Chairman Janet] Yellen also indicating that the Fed could tighten sooner."

Indeed, in the past month, builder stocks have been hit hard: D.R. Horton is down 13 percent; Lennar down 11 percent; PulteGroup down 11 percent and Toll Brothers is off more than 9 percent.

Read MoreLooking to buy? Best cities for first-time home buyers

Some analysts continue to point to the weather impact as well as a pullback in investors' overall tolerance for risk.

"The spring selling season has been effectively cut in half in many parts of the country. That has increased the short-term risks to the equities significantly," said analyst Stephen East of the ISI Group. "We are moving away from the traditional seasonal trade of the equities, and we have investors who just do not want to take that elevated risk."

East says the market is mixed at best with lower-priced homes struggling under the weight of tighter credit and weak job growth amid younger, first-time buyers. Bright spots are in higher-priced homes and the active adult sector. In its first quarter earnings, Miami-based Lennar reported more sales of bigger, higher-priced homes. Executives at Pulte last fall said they were concentrating on selling move-up homes, as the entry-level market was rough.

Read MoreA spring thaw for mortgages?

The investor pull back may also be a function of basic geography. All real estate, and all real estate investors, are local.

"This correction in the stocks seems to be driven by an overly pessimistic view by New Yorkers and Chicago buy-siders that have been drilled with one winter storm after another," said Buck Horne, an analyst at Raymond James. "In Florida—we have two weeks of chilly temperatures and a lot of 70 degree days. I wouldn't count out this spring selling season just yet. And baby boomers—man, are they back!"

Read More Housing's mixed signals: Are we in a bubble or not?

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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