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Builders Betting on Renters

Housing starts are a bright spot in the economy today, right? An unexpected 10.5 percent leap in the number of new homes started in August has everyone buzzing. The street was looking for around flat. So how can this be after the National Association of Home Builders sentiment survey yesterday came in below expectations, with builders saying their "hands are tied" by an impossible job market and rising foreclosures?

Simple.

Look at the numbers, please.

Apartment Building
Apartment Building

The 10.5 percent jump was driven by a 32 percent jump in multi-family.

Single family was up just 4 percent and that was due to seasonal adjustments.

Single family starts were actually lower month to month and year over year in August, unseasonally adjusted. They were in fact the lowest August on record going back 50 years, according to housing analyst Mark Hanson.

"In short, August unadjusted Starts did not fall as much as they generally do, so the seasonal adjustments printed a huge headline number. The reason they did not fall as much is because builders by and large didn’t build much over the past year and a half; the tax credit sucked up inventory and now the builders are light," notes Hanson.

We also have to note that the changes are subject to huge revisions, especially because we're talking about such small (depressed) numbers to begin with. A few thousand homes around the country can really affect the headline numbers.

"There is a lot of noise in the starts number. In fact the confidence interval says it could be down 8 percent mo/mo, or it could be up 16 percent, mo/mo, so you really need to look below the surface and focus on the permits number, rather than the starts, and that indicates flat at the bottom, rather than actually much new construction going on," says home builder analyst Michael Widner at Stifel Nicolaus. Single family permits fell 1.2 percent, for the fifth month in a row.

There is new construction going on; it's just in multi-family. Great for that sector, but what it says about overall housing is not so great. "Home ownership is no longer so desirable – or even possible – for as many households as before," writes Chris Christopher, Senior Principal Economist over at IHS Global Insight. "Recent evidence suggests that the mix of residential housing demand is shifting from single-family towards more multi-family structures; from owner-occupied toward rentals."

Maybe I shouldn't say it's not so great.

Maybe it's better for the health of the overall housing market that more people rent in today's economy.

The trouble is, that doesn't help us with the vast oversupply of single family inventory on the market today, and the new foreclosures that will come on the market in droves tomorrow.

Questions? Comments? RealtyCheck@cnbc.com