Each new housing data point is worse than the last, and they are prompting a leading industry analyst to say the market is in a correction. Single-family housing starts fell more than 13 percent last month from a year earlier, according to the U.S. Census. Building permits, an indicator of future construction, were down nearly 2 percent. This followed a sharp drop in homebuilder sentiment to the lowest level in more than three years, according to the National Association of Home Builders. "I definitely think we're in a correction," said John Burns, CEO of John Burns Real Estate Consulting. "Sales, according to our survey last month, were down 19 percent year over year. ... I would call that a correction." Burns points to higher mortgage rates, along with the surge in home prices over the last few years, as the culprit. Mortgage rates are a full percentage point higher now than a year ago. Half of Americans can only afford a $230,000 mortgage, according to Burns, and the builders in good locations just can't build at that price. Eleven of the top 19 builders have an average sales price above $400,000.

"The rise in mortgage rates has really been a double whammy for them," Burns said. "A lot of the focus has been on the first-time buyer who now can afford 7 percent less than they could at the beginning of the year just due to mortgage rates and home prices even worse than that." Builders cannot hit the lower prices because of higher costs for land, labor and materials. While they might be able to build cheaper homes farther outside major metropolitan areas, doing so is risky, given that demand there is so weak. "As long as builders remain concerned about buyer demand, single-family starts are likely to decline as builders adjust production accordingly," said Danielle Hale, chief economist at Realtor.com. "Rising home prices and mortgage rates have created high hurdles for homebuyers, while cost increases have made it difficult for builders to deliver homes at the most in-demand price points."

Strong demand for rentals