After a sizzling summer, the U.S. housing market showed signs of losing some momentum, indicating that the China-led global growth worries might have spoiled the industry’s growth last month. This is especially true as new home construction dropped 3% in August to a seasonally adjusted annual rate of 1.13 million homes, much higher than the market expectation of 1.16 million.

Despite the fall, housing starts remained above the one million-unit mark for the fifth straight month. This suggests that recovery is still on the way and will keep coming. The positive sentiments were driven by growing demand for homes, accelerating job growth, rising wages, affordable mortgage rates, and increasing consumer confidence (see: all the Materials ETFs here).

Additionally, new applications for building permits, a construction bellwether for the coming months, rebounded last month as it rose 3.5% to an annual rate of 1.17 million after falling 15.5% in July. Another data showed that homebuilder confidence jumped to the highest level since November 2005 as indicated by the National Association of Home Builders/Wells Fargo sentiment index that rose one point in September.

The optimism is also reflected in number of homebuilder stocks and ETFs. In particular, iShares U.S. Home Construction ETF (ITB – ETF report) and SPDR S&P Homebuilders ETF (XHB – ETF report) gained about 0.8% each on Thursday’s trading session despite the disappointing housing starts data. This was followed by a modest 0.04% gain for PowerShares Dynamic Building & Construction Fund (PKB – ETF report). From a year-to-date look, ITB, XHB and PKB has respectively risen 10%, 9.4% and 14.3%, and are easily outpacing the broad sector (XLB – ETF report) and broad market (SPY – ETF report) funds. XLB lost nearly 10.3% while SPY shed 1.74% in the same time frame (read: Summer Madness to Nut Case? A Fall Preview of ETFs).

All the three ETFs have a decent Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook. The outperformance in the homebuilding space is likely to continue in the coming months given that the residential and commercial building industry has a solid Zacks Rank in the top 38%. Further, S&P Capital IQ expects homebuilding revenues to increase 15% this year and 11% in the next thanks to encouraging industry fundamentals and an improving U.S. economy.

Investors seeking large profits in a short span could also take a look at the leveraged plays – ProShares Ultra Homebuilders & Supplies ETF (HBU – ETF report) and Direxion Daily Homebuilders & Supplies Bull 3x Shares (NAIL – ETF report). HBU provides double exposure while NAIL offers triple exposure to the index of ITB. However, the fund is relatively new in the space and has low trading activity, making it a riskier and a high-cost choice.