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Housing recovery is still on track: Analyst

Despite weak new home sales data released on Monday, an analyst said that the housing recovery is still very much forging ahead.

"The builders are up over the market," said Nishu Sood, a home builder analyst at Deutsche Bank. He was speaking on an interview on CNBC's "Power Lunch" on Monday.

He said that investors are still skeptical about the recovery, so gains have been slow and mostly concentrated in the larger cap names. "We expect as the housing recovery continues that investors gain a little bit more confidence and perhaps build up some of the small caps as well."

New U.S. single-family home sales fell to near a one-year low in September after two straight months of gains, suggesting a temporary cooling in the market for new houses. The Commerce Department said on Monday sales dropped 11.5 percent to a seasonally adjusted annual rate of 468,000 units, the lowest level since November 2014.

Sood said that new home sales have been running a little hotter than most people expected. As a result, Monday's numbers show a bit of a reversal, yet the numbers are still up 18 percent year-to-date, he added.

He also pointed to single family homes as having more potential than multifamily homes. "The multifamily sector is in the ninth inning or so of this recovery. On the single family side, on the other hand, there is still a ways to go."

Disclosures: Sood does not own shares of TOL, LEN, DHI, PHM or TPH. However his firm does own more than 1 percent of PHM and TPH.

— Reuters contributed to this report.