Hanley Wood, a real estate industry data and analysis provider, said this week that builders’ piece of the housing market pie has shrunk by almost 50 percent since the height of the market in 2006.

New home sales at that point enjoyed a 20-percent share of all home sales. In a post housing-bubble world, however, that share has fallen during the first half of 2010 to 10 percent.

Based on July’s historically low new home sales figures that share slipped into single digits, offset by REO sales.

The distressed properties still being dumped onto the market, at prices well below that of traditional resales or new homes, represent “an albatross around the neck of the residential construction industry,” according to the company’s latest Housing Intelligence update.

Broader housing market news released last week only underscored the home building industry’s challenges.

The National Association of Home Builders housing market index stayed unchanged at a reading of 13for September.  Expectations for weaker economic growth and weaker employment trends weighed on builder confidence despite mortgage rates reaching all-time record lows.

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The Commerce Department also reported that U.S. housing starts grew by 10.5 percent in August – the second straight month that construction activity has increased despite weaker home sales.

But that wasn’t the whole story. The reason for the uptick was an increase in building activity is coming from apartments and not in the form of single-family homebuilding.  Fewer banks are willing to finance construction projects for new home communities because of the weaker sales environment so many builders are going the rental route to keep activity moving.

The Federal Housing Finance Agency also reported that its house price index fell for the second straight month in July.  Prices for single-family homes declined by a seasonally adjusted 0.5 percent after falling 1.2 percent in June.