Unrealistic assumptions, multiple layers of investors and obscene prices in the commercial real estate market are all part of the reason why the current housing bust is costlier and more complicated than previous ones, comment Mara Der Hovanesian and Dean Foust for BusinessWeek. Average housing prices have already plummeted 41% from the 2007 peak. (Long or short commercial real estate?)

In times past, developers would speed up production to cash in on a real estate bull market, but some defaulted on loans and lenders were stuck with what they financed. What makes this current bust novel is that the oversupply of money from our greedy and eager bank caused our current situation – you may have heard of mortgage-backed securities. “If the cash flow wasn’t there, you had to ignore it or find ways to create it,” remarks a banker at a large Wall Street firm.

Additionally, the wanton lending environment was ideally suited for confidence schemers and swindlers who were able to receive large loans. Loan officers during the credit boom were basically ignoring obvious problems that should have raised red flags.

More than $1.4 trillion in commercial real estate loans will be due between now and 2012. The potential losses or defaults may further dampen lending, and, consequently, impede economic growth. Some feel that if the sector can roll over this debt, REITs and ETFs may be fine. But if they can’t, it’s cause for concern.

Commercial real estate ETFs are trading above their trend lines right now, but watch them closely for any correction and have a stop loss. (How to follow trends).

For more information on the commercial real estate, visit our commercial real estate category. (The benefits of REITs).

• First Trust S&P REIT Index (NYSEArca: FRI): up 17.9% year-to-date

• Vanguard REIT Vipers (NYSEArca: VNQ): up 19.1% year-to-date

• SPDR Dow Jones REIT (NYSEArca: RWR): up 17.8% year-to-date

Max Chen contributed to this article.

Vanguard

Vanguard Group Inc. is already the largest U.S. stock and bond mutual fund manager, and now the firm has set out to conquer the ETF industry, one sector at a time. Charles Stein for Bloomberg reports that Vanguard is the third-largest sponsor of ETFs, and has captured more than 30% of the money flowing into the business this year by charging an average fee of 0.15%; the industry average is 0.54%.

Vanguard now has $77 billion in ETFs, after inflows of $17.8 billion this year. The firm’s share of the market rose to 11%, up from 8.5% at the end of last year. (How to choose ETFs).

Their strategy of charging the lowest in fees is garnering the interest of many investors who are educated on the possibility that fees can cut into principal and earnings. (What else is important when selecting ETFs?).

But Vanguard has something else interesting at play: the firm’s founder, John Bogle, has been vocal in his criticism of ETFs. His chief complaint is that they encourage short-term trading. Bogle stepped down as Vanguard’s CEO in 1996.

For more stories about ETFs, visit our ETF 101 category. Among Vanguard’s lineup of funds include:

• Vanguard Emerging Markets ETF (NYSEArca: VWO): up 68.6% year-to-date
  

• Vanguard Europe Pacific ETF (NYSEArca: VEA): up 25.3% year-to-date

• Vanguard REIT Index ETF (NYSEArca: VNQ): up 15.4% year-to-date

The decline in the market should not dissuade any investor from allocating part of their portfolio to real estate, explains Julian Hince for Financial Times.

The benefits of real estate allocation include:

• A stable and steady income stream is possible
• Real estate has a low correlation to equity and fixed-income, giving clear diversification benefits
• Low price volatility is also a plus

Real estate investment trusts (REITs) have been looked at for their liquidity and as an alternative to direct property investment. REITs are publicly traded real estate companies that own, manage and sometimes finance real estate.

A REIT ETF will typically invest in a range of vehicles, offering investors the benefits of instant diversification through one single trade. Investors only need to make one transaction and track one price, but still gain exposure to the entire index at once. This makes them lower maintenance and easy to understand. They make it possible to have small investments in real estate.

For more stories about REITs, visit our REIT category. Among the many REIT ETFs available now:

• First Trust S&P REIT (NYSEArca: FRI): up 19.3% year-to-date
• Vanguard REIT Index ETF (NYSEArca: VNQ): up 20.1% year-to-date
• SPDR Dow Jones REIT (NYSEArca: RWR): up 18.9% year-to-date

Some major assets are priced at 1999 levels, and if the current situation resembles past ones, there may be opportunities on which you can capitalize, remarks Stacy Johnson for Wise Bread.

Case in point: housing prices have been greatly reduced, and commercial properties may now provide better cash-on-cash return – not including tax write-offs that may make them extra enticing.

• iShares Dow Jones U.S. Real Estate (NYSEArca: IYR): up 19.8% year-to-date

• iShares FTSE NAREIT Industrial/Office Complex (FIO): up 17.9% year-to-date

Another example is the stock markets. After the spectacular gains since the March lows, the stock market is still lower than it was prior to January 2000.

• SPDRs S&P 500 (NYSEArca: SPY): up 20.3% year-to-date

If you are one of the lucky few that does have money but doesn’t know what to do with it, luxury items have cheapened. The opportunities found in lower prices don’t come often.

• Claymore/Robb Report Global Luxury (NYSEArca: ROB): up 50.5%year-to-date

In the sage words of Warren Buffet, “be fearful when others are greedy and greedy when others are fearful.” It is also prudent to have a plan in place before you invest. We use the 200-day moving average to choose those areas that could be about to enter a long-term uptrend. You can read more about the trend following plan in our book, The ETF Trend Following Playbook.

For more information on trend following, visit our trend following category.

Max Chen contributed to this article.

Airline Industry. Total airline traffic is still declining, but at a slower rate than it was. Additionally, the drop in freight traffic is declining at a slower rate. Some analysts expect the industry to start taking off in 2010.

• Claymore/NYSE Arca Airline ETF (NYSE: FAA): up 51% in the third quarter

Brazil. Moody’s Investor Services is eyeing Brazil for a possible upgrade to investment-grade. Moody’s would join both Fitch and Standard & Poor’s in giving Brazil an investment-grade rating. A better rating will improved investor sentiment and a boost in the financial sector.

• Market Vectors Brazil Small-Cap ETF (NYSEArca: BRF): up 44.7% in the third  quarter

Commercial Real Estate. The real estate sector has been thoroughly beaten, but some analysts out there feel that the sector has seen the worst, and 2010 could mark a period of improvement. Some pension funds are also beginning to jump into the sector.

• iShares FTSE NAREIT Industrial/Office Complex (NYSEArca: FIO): up 39.9% in the third quarter

Mid-Caps. Mid-cap stocks and companies have done well as the broader market has recovered: in the last six months, they’re up about 45%. Only small-caps have been performing better – small-caps historically outperform the markets after a recovery.

• Rydex S&P Midcap 400 Pure Value (NYSEArca: RFV): up 39% in the third quarter

Insurance Industry. Fed by optimism about the prospect of improving conditions at the insurer, some insurance companies can bounce back higher from prior-year losses while others may see true growth. Property and causality insurers have been spared by a calm hurricane season so far, and most insurers benefited from a recovering financial market.

• SPDR KBW Insurance (NYSEArca: KIE): up 36.7% in the third quarter

Read the disclaimer, as Tom Lydon is a board member of Rydex Funds.

Max Chen contributed to this article.

Some good news for housing, as new home sales in the U.S. grew in August to the highest level in over one year. Builders cut pricing to compete with foreclosures and previously owned homes, reports Bob Willis for Bloomberg. If the worst housing slump since the Great Depression is finally turning, there are good ways to play the upward trend.

There is a so-called “big four” when it comes to domestic real estate or REIT, ETFs to pick from is you so desire the asset class for your portfolio. Don Dion for The Street says the following four are worth your consideration due to low fees, liquidity and diversification:

• iShares Dow Jones U.S. Real Estate (NYSEAcra: IYR)

The most popular ETF,with 24 million shares traded per day. Expense ratio is 0.48%, and there are $2.9 billion assets under management. IYR tracks the Dow Jones U.S. Real Estate Index, a float-adjusted, market-cap weighted index. Top 20 holdings are timber REITs.

• iShares Cohen & Steer Realty Majors (NYSEArca: ICF)

About 1 million shares per day are traded, and the expense ratio is 0.35%. Assets under management is at $1.7 billion. ICF follows the Cohen & Steers Realty Majors Index, takes into account management, portfolio quality and sector and geographic diversification. It rebalances quarterly such that no fund exceeds 8% of assets.

• Vanguard REIT (NYSEArca: VNQ)

VNQ has about 20 more holdings than most other REIT ETFs, and the sum of their allocations only came to 2.4% as of June 30. VNQ had $3.4 billion at the end of August and costs 0.15%. About 3 million shares per day are traded. This is a great buy-and-hold fund, but this ETF is not recommended for those who want up-to-date information on asset allocation. Since the fund does not re-balance quarterly as the others do, up-to-date information on holdings is not readily available. The low fees are unbeatable from a long term investor standpoint.

• SPDR Dow Jones REIT (NYSEArca: RWR)
  

RWR has $1.3 billion in assets and has an expense ratio of 0.25%. About 0.8 million shares trade per day, and  tracks the Dow Jones U.S. Select REIT Index, a float-adjusted, market cap-weighted index that rebalances quarterly. Compares the closest to IYR as far as holdings are concerned.

For more stories about real estate, visit our real estate category.

According to mortgage specialist Conti, property investors looking to snatch up houses overseas are sticking to proven, more traditional locations for long-term investment, according to NuWire Investor.

Locations of interest has France in the lead with 31% of inquiries received by the company, followed by Spain with 22%. Turkey remains in third with 13%, Portugal in fourth and Italy in fifth. Location interest is waning in countries such as Bulgaria and the United States.

• France. France has a relatively stable market. The country’s financial system is eager to lend to foreign investors, so much so that it may be possible to borrow up to 100% of the property value. Interest is low and many property sellers are still dropping prices.
• Spain. Buyers have a large selection of available properties and the benefit of low interest rates. But there are problems with exposure to corrupt licensing laws or land grab issues.
• Turkey. Turkey is situated in a nice Mediterranean location and overseas buyers won’t be up against a strong euro. Tourism is on the rise, which should increase demand for quality rental properties in tourist areas.
• Portugal. Portugal has seen a drop in interest rates and lower property prices, with some locations down 30%. Recently, the country reported an end to its recession.
• Italy. Italy can yield profitable acquisitions in more popular areas with international tourists.
• Bulgaria. Lenders have been in a bind with development and the market has a glut of  buildings. The result is a steep drop in valuations and banks are questioning asset security, which inevitably has lead to lower overseas demand.
• United States. The main reason overseas buyers look to the United States is because of a depreciating dollar, which has made properties cheaper.

• SPDR Dow Jones Wilshire International Real Estate (NYSEArca: RWX): up 36.4% year-to-date; France is 11.3%, Italy is 0.14%

• iShares FTSE/NAREIT Global ex-U.S. (NASDAQ: IFGL): up 41.8% year-to-date; France is 7.1%, Italy is 0.2%

For more information on the real estate sector, visit our real estate category.

Max Chen contributed to this article.

Gary Gordon of ETF Expert analyzes REITs and concludes that global REITs are the way to go.  He states that of the well-established U.S. REITs, most have huge amounts of debt coming due and if the credit markets tighten up, this could potentially be  a problem. Some analysts do feel, however, that if REITs can roll this debt over, then shares shouldn’t suffer.

Gordon likes foreign REITs for the following reasons:

• They earn profits in foreign currencies, so are getting a hedge against a weakening dollar
• They may not have to minimize existing shareholders by issuing more stocks to pay off ongoing debts

When investing in these equities, remember to watch the trendlines and do your homework.  Here are a few ways to grab exposure to foreign REITs:

• iShares FTSE/NAREIT Global ex-U.S. (NASDAQ: IFGL): up 44.1% year to date

• iShares FTSE/NAREIT Asia (IFAS): up 42.5% year-to-date

For more stories on REITs, visit our REIT category.

Kevin Grewal contributed to this article.

Since the market lows on March 9, financials have rebounded handsomely, up as much as 140% since then. Most of them are perched firmly above their 200-day moving averages, as well.

There are a variety of ETFs that cover the sector. Because of the sector’s high profile, it is essential to know exactly what is under the hood of these ETFs.  The sector can be  subdivided into the following: broad-based, regional banks, capital markets, insurance and REITs.  John Gabriel of Morningstar breaks down the sector and provides an in-depth analysis of industries that constitute the financial sector.

The most widely held and common financial ETFs are broad-based financials, which include the SPDR Select Sector Financial (NYSEArca: XLF) and the Vanguard Financials (NYSEArca: VFH). Banks constitute nearly half of the asset base of XLF and 42% of VFH, insurance companies account for nearly 18% of XLF and 22.5% of VFH and capital markets soak up about 19% of both XLF and VFH.

In regard to the banking sector, some common ETFs investors look at are the SPDR KBW Bank (NYSEArca: KBE) and the PowerShares Dynamic Banking (NYSEArca: PJB). KRE is heavily exposed to banks operating in the Pacific region, nearly 25% of its assets, whereas PJB holds about 6% of its assets in this region.  Additionally, KRE is the only regional bank ETF which doesn’t hold stakes in large money center banks, whereas 10% of PJB’s assets are allocated to this specialty.

As for capital markets, investors can grab exposure to exchanges alongside brokers, money managers, and former investment banks through the SPDR KBW Capital Markets (NYSEArca: KCE) and the iShares Dow Jones US Broker-Dealers (NYSEArca: IAI). Both funds are nearly identical, except that KCE includes a sampling of traditional asset managers in its mix.

When it comes to insurance, investors can grab exposure through the PowerShares Dynamic Insurance (NYSEArca: PIC), SPDR KBW Insurance (NYSEArca: KIE) and the iShares Dow Jones U.S. Insurance (NYSEArca: IAK). The major difference between these ETFs mainly lies in their exposure to life insurers.  PIC has 3% of its assets to the subindustry, whereas KIE and IAK have 22% and 23% allocated to life insurers, respectively.

As for real estate investment trusts (REITs), the most common ETFs include the iShares Dow Jones U.S. Real Estate (NYSEArca: IYR) and the Vanguard REIT Index (NYSEArca: VNQ). A big difference between these two ETFs is that IYR contains mortgage REITs and unconventional holdings such as timber REITs and real estate services firms while VNQ limits itself to primarily conventional REITs.

In addition to knowing what an ETF holds, we suggest one watch the trendlines and have a strategy as this sector continues its recovery, as well.

For more stories on financials, visit our financial category.

Kevin Grewal contributed to this article.

As the major equity markets are starting to build up to 10-month highs, some have even surpassed them, and certain ETFs are reflecting the success. Billy Fisher for Investopedia noted some of the top ETFs, and we’ve thrown in a few of the ones we’ve noticed, as well.

Sizable gains, a payback to the government and better-than-anticipated earnings are signaling a bottom may have been touched upon within the financial sector. There’s still a need for caution, though: financial ETFs have gained more than 100% off the March 9 market low, but the Federal Deposit Insurance Corporation (FDIC) reported that banks lost $3.7 billion in the second quarter in bad loans made to homebuilders, commercial real estate developers and small- and mid-size businesses,

• PowerShares FTSE RAFI Financials (PRFF): up 60% in the last three months

It’s not just big banks that have been a part of the rally. Regional banks have participated, too. IAT is up 16% for the past four weeks, but tread lightly- Rochadale Securities analyst Richard Bove said that an additional 150-200 banks could go under during the current banking crisis.

• iShares Dow Jones U.S. Regional Banks (IAT): up 12.9% in the last three months

VNQ had fallen 40% last year, but has recovered around 20%. Companies in this space will soon be facing debt payments resetting at higher rates, but it appears that most of the damage has already been taken into account by the market.

• Vanguard REIT Index (VNQ): up 22.5% in the last three months

The insurance sector is showing some signs of recovery. Layoffs within the sector are slowing down. In August, 8,000 layoffs are predicted – the smallest loss within the sector since July 2008, reports Insurance Working News.

• SPDR KBW Insurance ETF (KIE): up 27% in the last three months

Turkey’s market index has been driven up by the help of the banking sector, which make up around 40% of the market. Bank earnings have been bolstered by a series of rate cuts that has reduced interest on customers’ deposits as lending rates remain high. The Turkish economy shrank 13.8% in the first quarter year-over-year, as tax revenue receded because of a 23% fall in industrial production and rising unemployment.

• iShares MSCI Turkey (TUR): up 40% in the last three months

For more stories about banks, REITs and Turkey, visit the financial, Turkey and REITs categories.