The U.S. housing market went through a rough phase for a couple of months only to rebound in full swing and log a seven-year high new home sales data in February. In fact, the space hogged investors’ attention to start 2015 on sustained economic recovery, a healing job market, rising consumer confidence, moderating home prices and, of course, low interest rates prevailing in the U.S.

The optimism was so high in the housing space prior to the key spring selling season that even a frigid winter did not subdue the mood. New home sales surged 7.8% (seasonally adjusted) to a 539,000 annualized pace against economists’ expectation of a sequential drop to 460,000 in the month. But, sales surpassed January’s total.

The spike in the inventory along with a favorable job market and cheap energy bills probably led to this buoyancy. All these point to a staggering start to the busy spring selling season of homes. With the Freddie Mac 30-Year monthly average commitment rate falling to 3.71% in February 2015 from 4.30% in the year-ago level, purchasing houses became affordable. Plus, even after rising from the year-ago level, home prices are still below the pre-recession level.

Per Kiplinger, “across the U.S., home prices are still 23% lower, on average, than they were in 2006.” Not only this, Kiplinger expects home prices nationally to “rise by 3.5% in 2015, at the low end of the historical range of 3% to 5% annual appreciation (before inflation).” Kiplinger also expects existing-home sales to see an 8% jump in 2015 (which declined 2% in 2014) and new-home sales to skyrocket 25% this year (which saw just a 4% expansion in 2014).

What’s in Store for Spring?

The housing headlines draw investors’ attention from the first day of spring. The season warms up in March and sees maximum business till the back-to-school season in September (read: Two New Homebuilding ETFs from UBS Hits the Market).

The trend has not been too encouraging lately after data on Housing Starts and mortgage applications failed to match up to expectations. However, bad weather took the major share of the blame and the latest data show a ray of hope.

Nevertheless, bumps will remain in the road ahead. Investors should note that home supplies fell to 4.7 months at the current sales pace, the scantiest since June 2013, from 5.1 months in January. There were 210,000 new houses on the market at the end of February, the smallest number since October, per Bloomberg.

Existing home sales and pricing data were also subdued in February. Bloomberg indicated that a 7.5% year-over-year rise in the median February price was the highest rise in a year thanks to the lesser availability of homes in the market.

Overall, the space is giving mixed signals. Most recently, Lennar Corporation (LEN) and KB Home (KBH) surpassed Q1 estimates for earnings and revenues. LEN management believes that it is still in the early stage of a ‘protracted’, seemingly slower housing recovery, and that an early read from this year's spring selling season show a steadily improving market.

As per LEN, “the downside in the housing market is very limited and the upside is very significant and any pullback in the housing market would be short-lived.” On the other hand, KBH sounded more optimistic on the hopeful ‘early signs’ of the spring selling season (read: Homebuilder ETFs Piling Up Gains on Upbeat Earnings).

ETF Impact

Given the improving housing situation, related ETFs are expected to mop up gains. All housing ETFs including SPDR S&P Homebuilders ETF (XHB), iShares U.S. Home Construction ETF (ITB) and PowerShares Dynamic Building & Construction Fund (PKB) added gains on March 24.  The trio gained about 1%, 1.15% and 0.35% respectively.

Bottom Line

In a nutshell, though a broad-based shoot-up in housing seems less likely in spring, the trends are overall positive. Also, with the Fed not looking in hurry to hike rates and lowering the dot-plots for 2015, the sector should enjoy a nice spell of the selling season (read: 2 ETF Winners and a Loser Post Fed Meeting).