NEW YORK (TheStreet) -- Homebuilder stocks jumped into focus this week on strong housing data.

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XHB Year to Date Total Returns data by YCharts

Building permits rose to more than 1 million in October, the highest level since June 2008. Although most of the increase in October was explained by multi-family permits, which authorizes construction of apartments rather than single-family homes, analysts noted that there was underlying strength in the permit data.

KBW analysts pointed out that non-seasonally adjusted data showed an 7.4% monthly increase, so the data was not just affected by a higher seasonal adjustment factor. Trulia economist Jed Kolko said the three-month average of total building permits was also at a five-year high.

Meanwhile,  the widely followed S&P/Case-Shiller Index reported a 13.3% annual increase in September, further bolstering home prices.

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"We continue to favor large-cap builders based on valuation and balance sheet and note that they typically outperform small to midcaps earlier on in the seasonal trade," KBW analysts said in a report Wednesday.

According to KBW, historically, more than 75% of annual homebuilder returns are generated in the November-to-January time frame.

The analysts have outperform ratings on DR Horton (DHI) - Get ReportLennar (LEN) - Get Report and Toll Brothers (TOL) - Get Report

-- Written by Shanthi Bharatwaj in New York.

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