The housing construction market has recovered at a steady and gradual pace in the second half of 2014 after a slump at the beginning of the year. Overall economic growth, improving job numbers, growing consumer confidence, moderating home prices, stabilizing mortgage rates and a low level of housing inventory all led to the improvement. A string of housing data released lately portrays a mixed to slightly positive picture of the housing market. Existing home sales and new home sales rose in the month of October. Though housing starts declined in October and November, analysts in general believe the broader housing trends are stable to slightly positive and will pick up momentum in the New Year. Homebuilders are also turning more optimistic as demand for new homes rises with an improving job market and growing consumer confidence. Homebuilders’ confidence, as indicated by the National Association of Home Builders (NAHB)/Wells Fargo housing market index, rose 4 points to 58 in November. Though the index declined a point to 57 in December, it is still well above 50, which is the demarcating line between expanding and contracting activity levels. However, what keeps us concerned are the chances of a rise in short-term interest rates in 2015 as the Fed has already ended its six-year long quantitative easing program in October. Though the Fed had earlier promised to keep the key interest rate at record low for a ‘considerable time,’ investors are speculating about the timing of the planned rate hike. The robust job numbers might draw the Federal Reserve closer to raising interest rates. Higher interest/mortgage interest rates may have a moderating effect on housing demand and pricing. ETFs to Tap the Sector Given the improving fundamentals, the homebuilding sector deserves a closer look. For investors willing to play the space in a less risky way, an ETF approach can be a good idea. This technique can help to spread out assets among a wide variety of companies and reduce company specific risk at a very low cost. Below, we have highlighted three ETFs that are worth looking into. The SPDR Homebuilders ETF (NYSEARCA: XHB ) XHB is one of the more popular homebuilding ETFs in the market today with assets under management of around $1.48 billion and a trading volume of roughly 4.07 million shares a day. The fund has an expense ratio of 35 basis points. The fund holds 37 stocks in its basket, with 44% of the assets going to mid caps and 6% comprising large cap stocks. Despite the smaller holding pattern, the fund does not appear to be concentrated in the top 10 holdings. The fund has just 34.1% in the top 10 with Lowe’s Companies (NYSE: LOW ), Whirlpool Corporation (NYSE: WHR ) and Restoration Hardware Holdings (NYSE: RH ) occupying the top 3 positions with asset allocation of 3.64%, 3.63% and 3.56%, respectively. The fund’s assets include 33% homebuilders, 15% household appliances securities, 26% specialty retail stocks and the balance 26% building materials companies. The fund carries a Zacks Rank #3 (Hold) with a high level of risk. The iShares U.S. Home Construction ETF (NYSEARCA: ITB ) Another popular choice in the homebuilding sector is ITB, which tracks the Dow Jones U.S. Select Home Construction Index. It has $1.55 billion in assets with a trading volume of roughly 3.5 million shares a day, while its expense ratio is just 45 basis points. The fund holds 39 stocks in its basket, out of which only 12% are large cap securities. The fund has a concentrated approach in the top 10 holdings with 62.9% of the asset base invested in them. Among individual holdings, top stocks in the ETF include D.R. Horton, Inc. (NYSE: DHI ), Lennar (NYSE: LEN ) and Pulte (NYSE: PHM ) with asset allocation of 10.97%, 10.53% and 9.67%, respectively. Homebuilders accounts for around 64% of this fund. The fund carries a Zacks Rank #3 (Hold) with a high level of risk. The PowerShares Dynamic Building & Construction Portfolio ETF (NYSEARCA: PKB ) This ETF comprises around 30 housing companies and has its assets invested across all classes of the market spectrum. Engineering and construction stocks comprise 21% of the fund, followed by building materials companies that account for 17%. A look at the style pattern reveals that the fund has a preference for value stocks. The fund manages an asset base of $58.0 million and has an expense ratio of 63 basis points. The fund has only 16% in large cap securities and 46.1% in the top 10 holdings. The fund carries a Zacks Rank #3 (Hold) with a High level of risk. To Sum Up The housing market has improved dramatically from the trough year of 2009. Homebuilding activity is expected to take a cue from improving job numbers and a rebounding economy. Though the timing of a rise in interest rates creates uncertainty, homebuilders are increasingly optimistic of a pick up in sales in the New Year.