Happy 2007

We wish all our readers a very happy and safe 2007! We sincerely thank all of you for your continuous support.

Housing & Mortgage

Mortgage rates inched up over the week, following news of a jump in consumer spending in November. Financial markets were concerned that stronger spending could keep the fear of inflation alive and the Federal Reserve could hike the short term interest rate in 2007. Such worries were further compounded by the releases of new- and existing-home sales for November, which both exceeded market forecasts and caused Treasury bond yields to continue to rise.

According to the report released by the National Association of Realtors, sales of U.S. existing homes rose a surprising 0.6% in November, to a seasonally adjusted annual rate of 6.28 million. Inventories of unsold homes fell 1%, to 3.82 million, representing a 7.3-month supply. The median sales price fell, year on year, by 3.1% to $218,000. Read the full report.

According to Freddie Mac's weekly survey, the 30-year fixed-rate mortgage averaged 6.18% during the week ending Dec. 28, up from its 6.13% average last week. In 2006, the lowest point for the mortgage was seen on Jan. 19, when it hit 6.1%. The rate was 6.22% one year back. The 15-year fixed rate averaged at 5.93% this week -- up from last week's 5.89%. At this time last year this rate was 5.76%.

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 5.98%, up from 5.96% average last week. The hybrid averaged 5.79% a year ago. One-year Treasury-indexed ARMs averaged 5.47%, up from 5.44%. This rate averaged 5.15% a year ago.

ETF for Global Real Estate

Today the State Street Global Advisors (State Street), the investment management arm of State Street Corporation launched the streetTRACKS DJ Wilshire International Real Estate ETF (RWX) on the American Stock Exchange (Amex). The ETF is billed to be the first such offering designed to track overseas listed real-estate stocks and has an expense ratio is 0.6%.

RWX is based on the Dow Jones Wilshire Ex-US Real Estate Securities Index and is the first ETF to monitor performance of publicly traded global real estate securities outside of the U.S. To be eligible for the index, a company must have a market cap of at least $200 million and must derive at least three-fourths of its revenue from the ownership and operation of real-estate assets. The average market cap of an index holding is roughly $2.8 billion. The ETF doesn't focus exclusively on real-estate investment trusts, or REITs, because some countries such as Germany and UK have not yet adopted legislation that gives tax breaks to the companies similar to the United States.

RWX is the latest in State Street's series of international ETF offerings. Recently, State Street launched two Japan-focused ETFs: streetTRACKS Russell/Nomura PRIME JAPAN ETF (JPP) and streetTRACKS Russell/Nomura Small Cap Japan ETF (JSC), both of which are based upon indexes created by the Russell Investment Group and Nomura Securities Co., Ltd.

It may be recalled here that the State Street manages an ETF tracking the U.S. market, StreetTracks Dow Jones Wilshire REIT ETF (RWR) , that is up about 32% year to date and boasts a 5-year annualized return of about 23%. But many fear that the US REIT market is now overvalued and a correction is now overdue. The new ETF will thus provide a good opportunity of diversification.

RWX started trading today at $60.10 and at the end of the day closed 54 cents up at $60.64.

Mortgage Rate Steady

The Mortgage Bankers Association reported that mortgage delinquencies jumped in the 3rd quarter for all types of loans, but particularly for subprime ARMs (Adjustable Rate Mortgages) -- with the delinquency rate rising to 4.67% from the 2nd quarter's number, 4.39%. The number of borrowers who took on exotic mortgages to afford pricey homes has been a major concern of economists and housing analysts. But with mortgage rates remaining near the lowest levels of the year, many of those borrowers are jumping into the safety of a fixed-rate loan. The refinancing activity is increasing and, due to this low rate environment, some signs of stability in housing sector are appearing before us.

According to Freddie Mac's weekly survey, the 30-year fixed-rate mortgage averaged 6.12% in the week that ended today -- up a tick from its 6.11% average last week. In 2006, the lowest point for the mortgage was seen on Jan. 19, when it hit 6.1%. The rate was 6.3% one year back. The 15-year fixed rate averaged at 5.86% this week, again a little up from last week's 5.84%. At this time last year this rate was 5.85%.

Rate for 5-year Treasury-indexed hybrid adjustable-rate mortgages (ARM) averaged at 5.92% -- same as in last week. This rate averaged 5.77% a year ago. The 1-year Treasury-indexed ARMs have an average rate of 5.45%, up from last week's rate of 5.43%. At this time in 2005, the 1-year ARM averaged 5.15%.

New ETFs for Oil Futures

Claymore Securities Inc. and partner MacroMarkets LLC listed 2 oil-related ETFs (Exchange Traded Funds) on the American Stock Exchange on November 30th. They are issued as a closely linked pair, one for bullish investors on oil futures and the other for bears. Each hold short-term Treasuries and cash, and pledge to compensate each other based on changes in the settlement price of the Nymex Division light sweet crude oil futures contract.

Claymore MacroShares Oil Up Tradeable Shares (UCR) is meant for investors who want to take a long, or bullish, position on oil and will rise in value when futures prices increase. Conversely, Claymore MacroShares Oil Down Tradeable Shares (DCR) will make money when the price of oil would be falling. The latter can also be used as a hedge. Both are structured to track the benchmark price movement of West Texas Intermediate crude oil and comparable light sweet crude oil prices.

Robert Shiller, Chief Economist for MacroMarkets, is the architect of MacroShares and first addressed this concept of investment in his 1996 book "Macro Markets: Creating Institutions for Managing Society's Largest Economic Risks".

Both funds have expense ratio of 1.6% -- which is very high by industry standard. Currently, ETFs have average fees of only 0.43% of assets. Also, do not forget that you need to add broker commission on top of it anytime you buy or sell.

The Claymore MacroShares are structured very differently from other oil-linked ETFs on the market. PowerShares Dynamic Oil & Gas Services Portfolio (PXJ) invests in shares of publicly traded energy companies. The U.S. Oil Trust (USO) invests in oil futures and "rolls" the contracts to maintain exposure. The iPath Goldman Sachs Crude Oil Total Return Exchange Traded Note (OIL) managed by Barclays Global Investors also uses a similar strategy.

Real Estate: Agent's Share

The value of your home might have increased quite a bit but it's actually only 94% of what you think the price should be! A 6% commission is taken away by the real estate agents. For a long time both buyers and sellers were nurturing this grudge inside their mind while making the transaction, but things are changing for the better. A new breed of realtors are coming up to sneak into the market just by addressing this issue of importance.

BuySideRealty.com, which has launched in California, Illinois and Florida and expects to be nationwide by early 2008, returns 3/4th of the buyer's agent's share to clients.

Seattle, Washington based Redfin.com, which is also expanding to California this year, rebates 2/3rd of its commissions. [Late editing: Immediately after our initial posting today, one anonymous reader left a comment (see the comment link below) pointing out that one can now buy or sell a home through Redfin anywhere in Washington or California ... they also have an active Web presence in the San Francisco Bay Area in addition to Seattle. Thanks to him/her for this information.]

RebateReps.com gives back 1% of the home's selling price (about 1/3rd the commission) to buyers.

They are mainly taking advantage of the growing trend among potential buyers to use internet in making a choice, thus allowing buyers to do much of their work and in that process giving them back a portion of the traditionally fat commission. These agents are thus getting more transactions in their hands than what the traditional brokers are having.

Mortgage Rate Down Again

The long-term mortgage rates fell for the sixth straight week. The 30-year rate is now very close to the lowest level of 2006, 6.10% seen in January. As a result, refinancing activity is stepping up throughout the nation. It may act as a factor leading to revitalization of the housing sector.

According to Freddie Mac's weekly survey, the 30-year fixed-rate mortgage averaged 6.11% in the week that ended today -- down from its 6.14% average last week. The rate was 6.32% one year back. The 15-year fixed rate averaged at 5.84% this week, again a slide from last week's 5.87%. At this time last year this rate was 5.87%.

Rate for 5-year Treasury-indexed hybrid adjustable-rate mortgages (ARM) averaged at 5.92% decreasing from last week's 5.95%. This rate averaged 5.78% a year ago. The 1-year Treasury-indexed ARMs have an average rate of 5.43%, down from last week's rate of 5.46%. At this time in 2005, the 1-year ARM averaged 5.16%.

Housing Boom in India

As we all know by now that housing market in the U.S. is slowing. Last week the Office of Federal Housing Enterprise Oversight (OFHEO) reported that U.S. home prices grew at an annual rate of 3.5% in the 3rd quarter. Including the 3rd quarter, home prices are up 7.7% in the past year, the slowest in three years. A year ago, prices were rising at 13.4%. In last 5 years, home prices have risen by a whopping 57%. Also, according to an estimate released by the Commerce Department, sales of new homes fell 3.2% in October. New-home sales are now down 25.4% in the past year.

Perhaps this is the time to utter that good old Indian saying in Sanskrit 'Vasudhaibo kutumbakam' which means 'the whole world is my family'. It is time to take a global view and look elsewhere and what about India? Yes, India is the country where demand for housing is on the rise -- in fact in great demand with the middle class families steadily embracing more and more wealth throughout the nation. The Rich class is also trying to grab more square feet of their luxurious existence in hot markets like in Mumbai or Bangalore or New Delhi or Kolkata. And do not forget the Non Resident Indians, popularly called NRI, who are pouring in money to have a place of luxury as their vacation home.

Unfortunately, for average investors in US, there are no direct plays that can reap the full benefit of this housing boom in India, but there exist at least two indirect plays in the form of American Depository Receipts (ADR). They are two of India's fastest growing banks are the largest lenders that cater to the housing sector: Icici Bank (IBN) and Housing Development Finance Corporation or HDFC Bank (HDB).

The HDFC Bank is owned by HDFC Housing, one of the largest housing development finance companies in India. Icici Bank now operates in 14 countries a key player in the fast growing remittance market for NRIs who need to send money back to their homes. It now offers remittance services to customers who can send money to India, Sri Lanka and the Philippines.

Both these banks have gained good foothold in India's real estate market as well as the financial sector. With support from India's booming economy, these two stocks are supposed to perform great as a long term investment.

Disclaimer: We do not own these 2 stocks in our personal portfolio