The ETF saw its best day since May 24, 2016, when it gained 3.06 percent.
The ETF's gain came after the number of for-sale listings fell again in December to the lowest level since 1999, according to the National Association of Realtors on Tuesday.
D.R. Horton was among the top gainers in the ETF, up more than 6 percent Tuesday after its quarterly results surpassed Wall Street's expectations and reaffirmed its full-year guidance. Homebuilders Lennar and Pulte gained nearly 6 percent during the session.
With Tuesday's gains, the S&P Homebuilders ETF is up 4 percent year to date.