Housing Starts Rise, Led by Apartments

(Stock prices updated and Jim Cramer commentary added.)

WASHINGTON (TheStreet) -- New home construction is booming, led by apartment buildings.

Housing starts rose 1.5% in August to a seasonally adjusted 598,000 annualized units, just missing economists' expectations of 600,000 units, the Commerce Department reported on Thursday.

Starts of new single-family homes fell 3.0% to 479,000 during the month, the first decline in six months. But starts of large apartment units jumped 25.3% to 119,000.

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While housing is keeping on a track to recovery, starts are still down 29.6% year-over-year.

Building permits, a leading indicator of housing construction, rose 2.7% to 579,000, its highest level since last November.

On Wednesday the National Association of Home Builders said its housing market index rose for the third straight month in September. The index rose one point to 19, reflecting a growing optimism about rising home sales.

Shares of homebuilders, however, were in the red Thursday afternoon. Jim Cramer says many investors fear that the improvements in the housing sector are solely coming from the tax-rebate that is being awarded to new home buyers up until November.

As a result, Pulte Homes (PHM Quote) dropped 4% to $12.62, Toll Brothers (TOL Quote) fell 2.5% to $21.59, NVR(NVR Quote) slipped 0.6% to 669.48, KB Home(KBH Quote) tumbled 5% to $19.47 and Lennar(LEN Quote) was off 5% to $16.51.

While Cramer says he does trust the housing recovery, investors shouldn't buy homebuilders. Instead he turns to Bank of America(BAC Quote) and Wells Fargo(WFC Quote), which both hold 20% of the mortgage market.

-- Reported by Jeanine Poggi in New York

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