Signs of recovery in the residential real estate market are bleak as U.S. housing starts fell in February from a three-year high.The Commerce Department reported builders started construction on 698,000 homes last month, in line with analyst estimates. That amount was down 1.1% from a January pace that was stronger than previously reported.However there was a bit of good news. Permits increased to a 717,000 annual pace, the most since October 2008. This beat estimates of a projected amount of 686,000 from 682,000 in the prior month.This shows the optimism among homebuilders. The National Association of Home Builders/Wells Fargo index of builder confidence held in March at its highest level since June 2007, showing sales expectations are still on the rise.