Believe it or not, homebuilder exchange traded funds have been among the top sector ETF performers over the past month.

Builder ETFs are also posting solid gains this week. On Wednesday, the Commerce Department said housing starts climbed 15% in September. Existing home sales dropped 3% last month while an index of homebuilder confidence rose in October, according to reports earlier this week.

SPDR S&P Homebuilders (NYSEArca: XHB) and iShares DJ US Home Construction (NYSEArca: ITB) have rallied over 10% the past month. The ETFs have seen gains of about 5% over the past week.

The funds are rising amid a bleak outlook for the U.S. housing market. As the overstock of housing inventory mixes with drab consumer confidence, the foreclosure rate is up. Despite a rebound in builder sentiment, analysts do not expect to see significant signs of any improvement in the real estate sector this year. [ETF Chart of the Day: Homebuilders]

“Some pockets of recovery are starting to emerge across the country as extremely favorable interest rates and prices catch consumers’ attention,” said David Crowe, chief economist for the National Association of Home Builders. Nonetheless, he said, builders are “facing downward pricing pressures from foreclosed homes at the same time building materials costs are rising, and this is further squeezing already tight margins.”

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