In the third quarter, median home prices declined across the nation. One out of every 10 cities saw declines, and sales of distressed properties accounted for 30% of all sales, reports J.W. Elphinstone for the Associated Press. On the plus side, home sales continued to climb. Third-quarter sales were an improvement over both the second quarter and last year’s.

• MacroShares Housing Up (NYSEArca: UMM): down 8.6% in the last month

Sen. Chris Dodd introduced a financial overhaul bill this morning, which seeks greater changes than any envisioned by the White House or the House of Representatives. The 1,100-page draft would create an agency charged with identifying and removing systemic risks to the economy and consolidate bank regulation under a single regulator, report Michael R. Crittenden and Jessica Holzer for The Wall Street Journal.

• Financial Select Sector SPDR (NYSEArca: XLF): up 20.5% year-to-date

Treasuries are rising ahead of a $25 billion auction this week of 10-year notes. Analysts say the auction could be challenging. One analyst noted that recent economic indicators, including the jobs report last week, should support bond prices, says Ben Rooney for CNNMoney.

• iShares Barclays 7-10 Year Treasury (NYSEArca: IEF): down 4.6% year-to-date

Congress voted to extend the tax credit and President Barack Obama signed it into law this morning, according to The Wall Street Journal. (ETFs get a lift from economic report).

An $8,000 line of credit will apply to contracts entered before April 30, 2010, and closed by June 30 for homes up to $800,000. The law will also create a new $6,500 credit for homebuyers who lived in their previous home for at least five consecutive years.

Income limits for eligible buyers are increased to $125,000 for single buyers and $225,000 for couples.

Economists for the National Association of Realtors calculated that the tax credit has contributed $22 billion to the economy and an estimated 2 million people will use the tax credit this year. NAR president Charles McMillan says the government incentive has helped stabilize the housing market, stimulate the economy and create jobs.

Naysayers think prolonging the tax credit will artificially keep home prices high.

The expansion and extension of the tax credit may also be advantageous for homebuilder ETFs as more house hunters jump into the market. (Positive signals for real estate ETFs)

For more information on homebuilders, visit our homebuilders category.

• iShares Dow Jones U.S. Home Construction (NYSEArca: ITB): up 18.5% year-to-date

• SPDR S&P Homebuilders (NYSEArca: XHB): up 21.7% year-to-date

• MACROSHS HOUSING UP (NYSEArca: UMM): up 16% since inception

Max Chen contributed to this article.

The MacroShares Housing report, A Missing Ingredient to an Optimal Portfolio, by Robert J. Shiller, reviewed the merits of adding MacroShares Major Metro Housing Down (DMM) or MacroShares Major Metro Housing Up (UMM) to optimize an investment portfolio by increasing risk adjusted returns.

Modern portfolio theory suggests that an investor should hold risky assets in the market portfolio by leveraging or deleveraging through less risky assets according to individual risk tolerance. It can be inferred that investors could hold real estate in any portfolio that is not exposed to real estate risk, but there are other facets to be considered before doing so.

• Most people invested in housing do so on leveraged basis since there are more than 15 million households considered to be in negative equity since the housing bubble collapsed.
• UMM and DMM securities were made to help mitigate such events by letting people hedge against these vacillations in the market.
• It should be noted that the securities are incorporated with a 3-to-1 leverage.

In an example, Shiller calculated that if the housing index were replaced with a simulated portfolio invested in UMM during January 1987, the ETF would have rebased to the index level each time the security matured or expired (which happens if its underlying value has doubled).

Shiller has calculated that with a tangency portfolio for a zero risk-free rate includes 57% stocks, 11% bonds and 32% housing. By including real estate in a portfolio of stocks and bonds, the improvement in the risk-return tradeoff is increased by almost 5% of standard deviation to the left. This shows the nearly zero, or in his sample, slightly negative, correlation between UMM and either stocks or bonds.

As always, however, use a buy and sell strategy to protect yourself when investing in real estate ETFs.

• MacroShares Major Metro Housing Down (DMM)

• MacroShares Major Metro Housing Up (UMM)

For more information on housing, visit our real estate category.

Max Chen contributed to this article.

A report by the New-York based Conference Board reported that its consumer confidence darkened in July as worries of unemployment offset any enthusiasm from the rally in the markets.  The Board’s Consumer Confidence Index fell to 46.6 from 49.3 in June – far from economists’ expectations of 49. To put it into perspective, a reading above 90 would signal that the economy is on solid footing.

On a positive note, there is more good news out of the real estate sector.  The Case-Schiller Index, which tracks home prices in 20 of the nation’s largest metropolitan cities, rose for the first time since 2006.  The index indicated that the value of U.S. homes grew 0.5% month over month and 13 of the 20 cities in the index showed gains.  Unfortunately, the sector is still not completely in the clear: on an annual basis the index is down 17.1%.  The news sent the MacroShares Major Metro Housing (UMM) up 2.3% in intraday trading.

In the earnings arena, United States Steel (X), reported a second-quarter loss as demand was badly hurt because of the global recession.  The nation’s largest steel maker reported a loss of $2.92/share and beat Wall Streets expectations of $3.45/share.

Media giant Viacom (VIA) posted second quarter earnings of $0.49/share, a hair above the $0.48/share forecast by analysts. The company cited weakness in advertising and its filmed entertainment business as the causes of its 32% profit decline.  The news sent the PowerShares Dynamic Media Portfolio (PBS) down 1% in morning trading; VIA is 5%.

Deutsche Bank (DB) reported an increase in net income of 68% driven primarily by strong investment banking numbers.

Overall, the Dow Jones Industrial Average and the Nasdaq was down 1%, while the S&P 500 dropped about 1.2% in morning trading.

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

Kevin Grewal contributed to this article.

People should not unequivocally trust the words of pundits who are hinting at a housing bottom, remarks Barry Ritholtz for The Big Picture. Ritholtz is still on the fence in regard to the timing and shape of an eventual housing low. He provides some arguments as to why we are not near a bottom in housing prices or activity, which include:

• Prices. Home prices on the national level remain elevated, which still remain around 15% above historic metrics. Ritholtz thinks prices will drop lower for the next minimum two to four quarters and real estate prices won’t be increasing much many years there after.
• The average. Prices could drop past the median as prices go back to historical means, which often occurs after periods of mispricing.
• Jobs. Unemployment will likely remain elevated and would translate into a smaller pool of potential homebuyers. Wages have also been flat, or negative in real terms, and this would hamper families from trading up.
• Foreclosures. Foreclosures are unlikely to abate. This will in turn reduce home prices. Loan Mods are also not working with a redafaulting rate in less than a year between 50-80%.
• Inventory. There is a large supply of “shadow inventory,” which flippers, speculators, builders and financers are sitting on in hopes of higher home prices in the future. It is possible that between 1.5 to 3 million are just sitting unattended.
• Psychology. After the dot-com collapse, the credit crisis and house prices losing about one-third off their high, total losses to the American family is around $25 trillion. This amount of loss has made everyone think twice about taking risks in the market.
• Credit/Debt. There are a lot of people with poor credit and too much debt, which usually impedes the process of buying a home. Banks are also tightening standards, such as requiring higher loan to values for purchases, better credit scores to get approved for mortgages and lower levels of debt servicing relative to income.
• Deleveraging. Americans are saving and deleveraging wealth, and the process is likely to continue as people become risk averse after taking so many hits to their bank account.

While relatively new, MacroShares provides a useful way to access the housing market with its two ETFs. The two ETFs are a good way to play your own perspective on the housing market. Whether the bottom is really here or not, watch the trend lines for potential opportunities.

• MacroShares Major Metro Housing Up (UMM)

• MacroShares Major Metro Housing Down (DMM)

For more information on housing, visit our real estate category.

Max Chen contributed to this article.

MacroMarkets

After a series of delays, including an aborted effort to launch the products via a unique initial public offering in May, the eagerly awaited MacroShares real estate ETFs are finally up and running. Matthew Hougan for Index Universe reports that the funds are designed to deliver 300% and -300% of the return of the S&P/Case Shiller Home Price 10 Index.

The ETFs are:

• MacroShares Major Metro Up (UMM)
• MacroShares Major Metro Down (DMM)
  

Under the structure of the ETFs, the up and down Macros hold Treasury securities as their sole asset. As the benchmark index moves up or down, those Treasuries are transferred back and forth between the two funds. The structure allows MacroShares to launch products tied to any reference price, including previously uninvestable benchmarks such as national home prices.

The funds are set to expire on Nov. 25, 2014, at which point investors will receive a payment based on 300% of the change in the underlying index from Dec. 31, 2008-Aug. 31, 2014.

The ETFs are dawning on the market at a time when home prices have been declining. However, analysts suggest that the rate of dropping prices is slowing and the signs of stabilization are showing up, reports Renae Merle for The Washington Post.

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

MacroMarkets

The two ETFs are MacroShares $100 Oil Up Trust (UOY) and MacroShares $100 Oil Down Trust (DOY) and they are the second pair of oil-related trusts that the provider has had to terminate.

In an effort to stay in the markets, the provider is in the process of an IPO for their MacroShares Major Metro Housing Up  (UMM) and MacroShares Major Metro Housing Down (DMM). The paired securities will have a five-and-a-half-year term and will feature a 300% leverage factor.

Right now the state of the ETF industry is in the rapid growth phase, with every idea and fund getting a chance to go to market. Providers are trying out every idea in an effort to figure out what is desired by investors.

There have been several ETF closings in the last year or so. The liquidation of tiny funds that can’t attract any market share are the first to go, and many other funds are sure to follow in these tracks, and by all means, these are not the first to close up shop either, reports Chuck Jaffe in his syndicated column. A lot of ETFs could go away, because they’re based on ideas that just haven’t caught on with investors. No one has really bought these funds, so no one will miss them.

Every industry has its hits and its flops – not everything can be a winner, and it’s all part of natural selection, as well as keeping competition lively and healthy.

Many insiders feel the ETFs are just too complicated for regular investors. MacroShares Metro Major Housing Up (UMM) and MacroShares Metro Major Housing Down (DMM) are  a constant shifting of assets back and forth between the two in an attempt to mimic the percentage changes in an underlying benchmark.

These ETFs might fare well, simply because of demand for this type of fund. There are few alternatives for investors who want exposure to the residential housing market. Up until this point, ETF investors had real estate investment trusts (REITs), which are mostly commercial, or homebuilders, which don’t give perfect exposure.

The highly anticipated auction of MacroShares Major Metro Housing Up (UMM) and MacroShares Major Metro Housing Down (DMM) began on April 28 and will run through May 5 at 1 p.m. ET, according to Globe NewsWire. The initial offerings of both UMM and DMM will occur simultaneously.

Liam Denning for The Wall Street Journal reports that U.S. residential real estate was still valued at $18.3 trillion at the end of 2008, according to the Federal Reserve. The brainchild of economist Robert Shiller, they will offer investors a way of betting on rising house prices by buying “Up” shares, or expressing pessimism via “Down” shares, with no actual physical housing to back them.

The ETFs will be tied to the Standard & Poor’s/Case-Shiller Composite 10 Home Price index. When the Up and Down shares float, proceeds will be invested in U.S. government bills to ensure liquidity. If the index moves up, the trust behind the Down shares will shift a corresponding portion of its assets to the Up shares trust, raising the net asset value underlying the Up shares. The prices should follow.

There are few alternatives for investors who want exposure to the residential housing market – real estate investment trusts (REITs) focus on commercial property, and homebuilders don’t give perfect exposure. Investors who want more direct access to housing prices could find these funds attractive.

MacroShares is also the name behind two up/down oil funds. The first incarnation liquidated after oil prices topped $111 for three consecutive days. Last July, they launched a second set of up/down oil funds: MacroShares $100 Oil Up (UOY) and MacroShares Oil Down (DOY).

Just as their predecessors had been, UOY and DOY are paired products that track the price movements of West Texas intermediate oil. The starting price for a share is $25, representing one-quarter of the benchmark oil price. As the price rises and falls, assets are transferred back and forth dollar-for-dollar between the Up and Down trusts.

Yesterday, the Case-Shiller Index of 20 major cities fell 18.6% from a year ago in February.

Robert Shiller is putting his wits, with the help of other investors, to the test with the launch of up-down housing ETFs.  They are in the final stages of approval with the SEC. Bob Pisnai for CNBC says these ETFs will trade on the NYSE Arca later this month:

• The Major Metro Housing Up (UMM) will deliver three times the return of the benchmark.
• The Major Metro Housing Down (DMM) will deliver three times the INVERSE return of the benchmark.

The benchmark index is the S&P Case-Schiller Composite-10, an index comprised of real estate sales from San Diego, Los Angeles, San Francisco, Las Vegas, Denver, Chicago, Boston, New York, Washington, DC, and Miami. The 10 cities comprise about 30% of all the real estate transactions in the United States.

Initially there will be a Dutch auction IPO where investors can bid how much they are willing to pay for an Up share or a Down share.

For investors who have significant exposure to the real estate market, this could be an opportunity to hedge your bets. If real estate values continue to fall, the Down should go up in value. If the real estate market starts to recover, the Up should go up in value.  These aren’t your typical ETFs, so be sure you understand them before taking the plunge.