Just when it seems like the U.S. housing market and exchange traded funds (ETFs) are finally on some sort of road to recovery, another setback rears its head.Could the three-year housing slump be over, finally? Today, it doesn’t seem like it: a surprise drop in housing construction has dampened such hopes. Builders broke ground on the fewest homes on record in April as a plunge in work on condominiums and apartment buildings overwhelmed the second straight gain on starts on single-family properties.

On the other hand, however, the National Association of Home Builders/Wells Fargo Housing Market Index rose to 16 from 14 in April, in line with market expectations, reports the Associated Press.

The current market conditions led the NAHB to say that homebuilders seem to be feeling that a bottom is in sight, and that the climate for buying homes were the “best home buying conditions of a lifetime.”

Two major home improvement dealers have reported earnings this week:

• Home Depot (HD), reported a 9.7% decline in first-quarter sales.  Regardless, the company was still able to beat Wall Street’s expectations reporting earnings of $0.35/share as compared to analysts’ forecasts of  $0.29/share.
• The nation’s second-largest home improvement chain, Lowe’s (LOW), posted a 22% decline in first-quarter earnings, but still beat Wall Street’s expectations.

Could the outpacing of expectations have something to do with a new wave of DIYers taking on their own home improvement projects? Just be careful – there are some things that should be left to the pros.

• SPDR S&P Homebuilders (XHB): up 7.3% year-to-date

• iShares Dow Jones U.S. Home Construction (ITB): up 9.8% year-to-date

Tags: Asset Class ETFs, Homebuilders, ITB, Real Estate, Sector ETFs, XHB