By Diana Olick, CNBC Correspondent NEW YORK ( CNBC) -- The headline number for housing starts was big, exceeding expectations and sending the home builder stocks on yet another tear. Starts hit 894,000 (annualized) in October, over 50,000 more than the analysts forecast. Housing starts are now at their highest level since July 2008. "We expect the builder equities will react positively initially, but then fade through the day once the report is fully digested as 'multifamily' was the key driver of the results," warned Stephen East at ISI. There is no question that home builders are benefiting from tight supply in the existing home market and overall improved consumer confidence. That was apparent in the home builder confidence numbers released this week, which hit the highest level in six years.
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Should investors be concerned about overbuilding in the apartment sector, given these huge jumps in starts coupled with the fledgling single family housing recovery? No. "We've had four years of zero supply," said David Toti of Cantor Fitzgerald. "There's still a groundswell of demand. The shift from owning to renting is still moving in favor of the renter." Multifamily starts are now above 10-year averages. In fact they officially crossed them in October, but home ownership levels continue to contract. As for apartment performance? Landlords are raising rents and occupancies, and that does not point to any weakness, for now at least. So why then are the multifamily REITs all down on the starts numbers? They have actually been underperforming all year, as investors seek higher yield in other sectors, like industrial REITs. But another factor could be Archstone Inc., an apartment building owner and developer owned by Lehman Brothers Holdings. It said Monday that it plans to raise up to $3.45 billion in its initial public offering that may happen this year. Investors may be making room for Archstone, pulling out of others to get in to the new player. --Written by Diana Olick at CNBC