Housing starts stall, optimism doesn't

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Despite an unexpected and substantial fall in new home construction in June, industry analysts appear undeterred in their veritable housing euphoria.

"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."

Even Federal Reserve Chairman Ben Bernanke is riding high on the housing bandwagon.

"Rising housing construction and home sales are adding to job growth, and substantial increases in home prices are bolstering household finances and consumer spending while reducing the number of homeowners with underwater mortgages," Bernanke told members of the House Financial Services Committee.

(Read More: Bernanke: Fed to begin tapering bond purchases later this year)

While economists who study the numbers from afar continue to have a positive view of the housing recovery, those closer to Main Street are not as certain.

"Homebuilders in recent months have been restrained by shortages in skilled residential construction labor and building materials. Furthermore, rising interest rates have begun to put a damper on homebuyer demand, a sign that the market is slowly shifting out of homebuilders' favor," noted Ellen Haberle of Redfin, a real estate company.

Homebuilder sentiment hit a seven-year high in July, even amid a spike in mortgage rates, but that rise has likely not shown up in the sales numbers yet.

(Read More: Home builder confidence soars despite rising rates)

"Despite an increase in the builder sentiment index yesterday, new construction is leveling off. Rising rates have dampened some demand, although the market will grow at a healthy pace in the coming months," noted Bob Walters of Quicken Loans.

Supplies of homes, new and existing, for sale remain tight, and that continues to push prices higher. Mortgage applications to purchase a home are down eight percent since the beginning of May and mortgage applications to buy new construction fell 15 percent in June from May, according to the Mortgage Bankers Association.

While mortgage rates have come down since their recent spike, they are still expected to go higher in the coming months.

By CNBC's Diana Olick. Follow her on Twitter @Diana_Olick.

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