Housing starts fell 8.5 percent in January, a surprising drop after they jumped 15.7 percent during the previous month, according to the Commerce Department.

Though single family home construction is at its highest level since July 2008, privately-owned housing starts last month were 8.5 percent below the revised estimate of 973,000 private housing starts in December. The current level is still 23.6 percent above that of January 2012.

Economist Diane Swonk points out that "single-family home construction is where you want to be, that is where the jobs are."

Jim O'Sullivan, chief U.S. economist with High Frequency Economics, said the level was still up significantly from 851,000 in November.

"The pattern is consistent with a continued uptrend, with December exaggerated by milder-than-usual winter weather," Sullivan said in a note, while the cold weather last month may have played a part in the drop in construction activity.

"We suspect the index is just pausing, but that remains to be seen," he said.