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54 metro areas were judged to be overvalued during Q1 2007, representing a decline from 62 metro areas during the Q3 2006. More important were declines in the share of all housing units, and real estate assets, judged to be overvalued. In terms of housing units, the percent deemed to be overvalued declined from 17% to 14%. In terms of single-family asset value, the percent deemed to be overvalued declined from 33% to 25%.

California, Arizona, Florida, parts of Oregon, Washington and New York were judged to be overvalued. Parts of mid-west states were judged to be undervalued.

House prices have been resilient in the interior West, though we see overvaluation there increasing, making those gains precarious. Bend, Oregon and Prescott, Arizona are now the nation’s most overvalued markets. Alternatively, price gains in Texas seem more firmly based, as valuations there are attractive by historical standards.

157 of 317 metro areas suffered price declines during the last quarter. These 157 metro areas accounted for 38% of all single-family units and half of all single-family real estate assets in the nation. Declines were widely dispersed, though most highly concentrated in California, Florida, New York, New England, and the industrial Midwest.

Nationally, house prices advanced during the first quarter at an annualized rate of just 2.2%. This latest gain falls between the third quarter pace of 2.0% and the fourth quarter pace of 2.5%. On a year-over-year basis, prices are up 3.0%, the weakest gain in a decade.

Foreclosure Story
A study showed that 139 of California’s zip codes fell within the top 500 for total foreclosure filings in the United States. The next highest count for any state is less than half that at 72 and is in another sun-belt state Florida. However Cleveland’s zip 44105 saw the highest number of foreclosures in the nation with a total of 784 filings during the three months ended June 15. The hardest hit zip in California was Sacramento, 95823, where there were 634 default notices, repossessions and auction notices. It had the sixth most foreclosure filings for any zip code in the nation.

California boasts a vibrant economy and a fast growing population. High number of foreclosures occur due to serious underlying economic problems such as job layoffs or plant closings. But the California foreclosure spike, as well as those in Florida, Arizona and Nevada, was set up by a huge appreciation in house prices that put the market beyond affordability. In last few years the house prices have appreciated in double digits making it an attractive proposition for real estate investors. When markets cooled, speculators added to downward price pressure by unloading their properties onto already lengthening inventories. In many of these markets, prices fell below what investors paid. Many of them havent been able to pay up for the mortgage, leading to foreclosure.

Many Sun-Belt buyers bought their high-priced houses using adjustable rate mortgages (ARMs) which featured very low initial, or teaser rates that reset much higher. Many buyers used ARMs to get into a house with little regard for whether they could afford the payments, betting that rising prices could build enough home equity they could tap for cash. When prices stabilized or fell, that safety valve disappeared. Owners couldn’t pay monthly bills, and they had no equity to draw on.

In the Rust Belt, it was the ripple effects of a dying industrial economy instead of speculation that crushed the finances of many borrowers in states like Michigan, Ohio and Indiana. People in these area have lower than average income, higher than average unemployment and a large stock of older, single-family homes. Many of them sell for less than $100,000, some for under $30,000.

In Sacramento, 95823, by contrast, residents depend more on government jobs and service industries for employment, although wages are still below average for the state. Homes there are more modern and more valuable than in 44105; even modest three-bed/two bath houses go for several hundred thousand dollars.

Neither the Rust Belt nor Sun Belt are likely to see easier conditions any time soon. In the Sun Belt, the subprime mortgage mess will take many months to work through as the many borrowers who took out 2/28 and 3/27 ARMs during 2005 and 2006 will hit their reset points this year and next. It is expected that delinquencies will peak by the end of the year and so will foreclosures in 2008.

Commercial Real Estate Hits Record
U.S. commercial real estate investment reached a record $157 billion in the first four months of 2007, up 62% from a year earlier, as office purchases surged. Markets with the highest transaction volume were Manhattan, Chicago, Northern Virginia and San Francisco.

Homebuilder Confidence Drops to 16-Year Lows
The Homebuilder index decline was in line with economist expectations. The index bounced in early 2007 on unseasonably warm weather, but builders are more pessimistic as delinquencies and foreclosures force lenders to send potential homebuyers away.

Copper Dips Amid Renewed Worries Over US Housing Market
Copper dipped as traders remained cautious following weak US housing data. On the surface this could undermine confidence in metals, however it may also reduce the chance of the Fed having to hike interest rates, which in turn could see bond yields dip, treasuries rise and the dollar weaken.

Some Top-Rated Subprime Bonds Downgraded
131 bonds backed by second-lien or piggyback subprime mortgages were downgraded, which allow home buyers to borrow the cash needed for a down payment, effectively putting no money down for a house.

(Source: CNN Money, SeekingAlpha)

Penny stock is a stock that trades at a relatively low price and market cap, usually outside of the major market exchanges. These types of stocks are generally considered to be highly speculative and high risk because of their lack of liquidity, large bid-ask spreads, small capitalization and limited following and disclosure. They will often trade over the counter through the OTCBB and pink sheets.

There are many good penny stock investments available, which could turn a small amount of capital into a small fortune very quickly. However, to discover these you need to know what to look for and what to avoid. When searching for that one big payoff, steer clear of the following examples.

The Phone Salesman
Anyone who is attempting to sell you investments over the phone should be considered an enemy. They have high-pressure sales tactics, and effective, believable arguments. However, they are not doing you any favors, no matter how good they make an investment sound. They are operating in their best interest to dump over-the-counter stock on you, and the money you pay in will go into their own pockets, or the pockets of their company. There has never been a need for good companies that are going places to resort to these type of tactics, but there has always been a need for poor, sinking, or shady companies to do so. If you choose to ignore this advice you deserve what happens to your investment. You may also run into difficulty trying to find a buyer for your shares once you decide it is time to sell.

Very Low Volume Stocks
Without much trading activity it becomes increasingly difficult to buy or sell for the prices you want. As well, it becomes nearly impossible to get an understanding of where the stock price is heading, or to calculate fair valuations for the company’s stock price. Not only that, but companies subject to low trading volume generally do not have a lot of positive interest.

The Hot Tip Stock
There are actually professional promoters who make a living by spreading false rumors about some penny stock that is guaranteed to rise sharply. The idea here is to spread the rumor from person to person, at the office, over the phone, or at social venues. The promotional ploys can be very costly for investors who get involved without special knowledge about the company or the actions of the promoter. In most cases if a stock really is going through the roof you won’t hear a word about it, because a select few individuals will be very intent on keeping the information to themselves.

Guaranteed Performance
If a stock is guaranteed to go up, it will almost always go down. Nothing is ever certain, especially on the stock market. When someone guarantees certain performance out of a stock, they may be a promoter, naive investor, self-serving broker, or have heard the guarantee from another source. In any case, don’t believe them. Instead check into the company yourself and if you feel it is a good investment, you may want to proceed.

Sinking Ships
When a stock has dropped a lot you may think that, it wont go down any furthur. Especially with penny stocks, you need to avoid this type of thinking because many sinking ships don’t ever rebound, and they can go lower, and they aren’t good bargains just because they cost less than before.

Commission Free
If you are interested in getting stock commission free you may think you are saving money, but it generally means that you are buying over the counter stock directly from a promoter or the company. Either way, they take their own invisible commission from you, either by selling to you for an arbitrary amount which is unfairly high, or selling to you for the asking price rather than the bid price based on their own current valuations.

International Penny Stock
Penny stocks from Africa, Australia, European, Russian, or South American penny stock markets can be really a risky bet. The level of investor protection and exchange honesty in some of these regions is not upto the mark. Additionally the broker fees is really high for international penny stocks. Experts believe, if you can’t find good penny stock investments in North America, you won’t be able to find them anywhere else either.

Warrants and Rights
These are not technically stocks, but instead are derivative investments based on an underlying company’s shares. However, they often appear like penny stocks because they sometimes get listed in the stock pages, and often trade for pennies. It is unlikely that you will accidentally purchase derivatives, but make sure you know what you are trying to buy by understanding the listing criteria of the paper you are reading, or verifying your purchase with your broker.

The major advantages that ETFs offer investors are

• Diversification of investments
  
• Low risk
  
• Low costs than mutual or index funds,
  
• Flexibility because they trade like stocks, and
  
• Tax advantages like the ability to defer capital gains.

However, not all ETFs are created equal and there are actually 4 different types for investors to choose from:

UIT’s
Unit Investment Trusts, or UIT’s, were the first of the ETFs and the big names for this type include: Spiders, Midcap Spiders, Diamonds, and Cubes. All of these ETFs were created by the American Stock Exchange which continues to be the most popular exchange for ETFs. All of these ETFs were designed to track the major indexes like: S&P 500, S&P Midcap, Dow Jones Industrials, and the NASDAQ 100.

One of the issues with UIT’s is that they hold all dividends received and then pay them out to shareholders on various distribution dates. When this happens, a tracking error is created because the value of the ETF is no longer in line with the underlying index due to the cash exposure caused by the payout. The tracking error is not a huge issue, but it does cause some headaches for accountants come tax time.

UIT’s are not the most popular version of ETFs these days, but the Spider ETF is still the largest with assets in excess of 40 billion dollars.

Open-End Fund
The open-end funds make the most common ETFs. The thing that stands out for these ETFs is that these ETFs reinvest dividends automatically so there is no worries about tracking errors like with the UIT’s.

ETFs of the open-end fund type track a number of indexes. Some of the open-end ETFs track specific market sectors as well. With the exception of the fact that dividends are reinvested automatically, open-end fund ETFs function and trade in the same manner as UIT’s. Some of the more common ETFs from this type include: iShares, Streettracks, and Powershares.

VIPERS
Vanguard Index Participation Receipts, or VIPERS, are ETFs that were created by Vanguard. VIPERS are a very different kind of ETFs because they are actually a class of Vanguard index funds. This can create a problem because capital gains must be distributed across all share classes. Therefore, there is potential for exposure to capital gains when shareholders own other Vanguard mutual funds. Vanguard attempts to negate the capital gains by selling off losing investments through the creation/redemption process.

HOLDR’s
Holding Company Depository Receipts, or HOLDR’s, are ETFs marketed by Merrill Lynch. These specialized ETFs offer a number of advantages over the other types.

HOLDR’s are usually created using a basket of 20 related stocks. The baskets are all unified in theme and contain stocks from any number of highly specialized industries or sectors, including: B2B services, Internet architecture, biotech and any number of niche markets. Once the basket is complete, the stocks will not change for the life of the ETF unless there is a bankruptcy, merger, or some other factor causing the business to cease operations.

What is truly unique about HOLDR’s is the fact that investors are considered to be owners of the underlying stocks in their basket. This means that investors are able to vote and receive dividends. In addition, an investor can “un-bundle” stock from their basket and make a non-taxable exchange (sell off bad investments and buy more good ones to offset potential capital gains). Of course there is a small fee for this un-bundling, but the tax savings are usually more than worth the charge.

Conclusion: The four different types of ETFs all offer varying degrees of investment performance and each comes with specific tax implications. The right ETF for any specific investor will depend upon their needs and investment objectives.