This from Investor’s Daily Edge:

A little over a week ago, in my Monday column, I correctly predicted that the December Housing Starts and Building Permits reports would miss the mark by a wide margin. I even correctly picked the actual number. This past Monday, my prediction was that the December Existing Home Sales report would also likely disappoint. I wasn’t such a good fortune teller the second time around.

The December Existing Home Sales report actually surprised to the upside, posting a gain of 6.5 percent versus November. This equates to roughly 290,000 units.

It turns out that I just underestimated how bad the housing market is. These sales aren’t from eager buyers who got priced out of the market during the run up over the last few years. The buyers are vultures, swooping in and cleaning the carcass. Over 45 percent of the sales were “distressed” according to the report.

That is bad news for the market. It is just the beginning of a viscous cycle.

Foreclosures continue to drive down prices in all markets. As a result, more and more homeowners see their equity vanishing. Many more find themselves underwater. This leads many to simply throw in the towel and let their own home go into foreclosure, feeding the cycle.

Another item to consider is whether or not all the bank-owned foreclosures are even back on the market yet. There is growing evidence that banks are holding back properties from being re-listed to avoid flooding the market, which would result in prices being driven down below what they hope to get for the repossessed homes. This means there could be an additional backlog of properties that we aren’t even aware of yet. This will delay any recovery.

Finally, a major question that needs to be answered is how many people actually qualify to buy a home? Fannie and Freddie are said to be toughening up on standards, and banks are just flat out not lending. That means short of a huge down payment or an all-cash purchase, buying any home, foreclosure or not is going to be difficult. And the housing market needs buyers to move the inventory.

With all this gloom in the market, it is going to take quite some time for a recovery. That leaves you plenty of time to profit from the slide in the housing market. One way is shorting the iShares Real Estate Index (NYSE:IYR), another is shorting the Vanguard REIT ETF (NYSE:VNQ). Both have already seen a significant down leg, but with the housing market the way it is, there is still plenty of room to the down side.

A more speculative play could be the UltraShort Real Estate ProShares (NYSE:SRS). This ETF moves inverse to real estate, so it goes up as the market goes down. A quick look at the chart shows a huge spike in November and a drop since then. It is now trading at two-year lows, so you could view it as a more speculative play on the continuing decline of the housing market.

Source: There Is Still Money To Be Made In The Housing Market

This from Investment U:

The U.S. housing market is walking the plank. Easy credit helped usher in an unprecedented period of rising home prices. But now those same lax credit standards have us caught in one of the worst slumps in recent memory.

According to the latest data, the inventory of unsold homes sits at 4.23 million, representing a 10.2-month supply at the current sales pace. For comparison’s sake, that’s as many homes as Delaware, North Dakota, South Dakota, Alaska, Vermont and Wyoming have people.

In other words, an eager buyer these days is about as hard to find as a living dinosaur.

But before you abandon the beleaguered real estate sector altogether, you should know that opportunities for safe and steady profits do exist.

In fact, I’ve found a handful that may well be the most attractive investments – given the abysmal state of the markets right now – this side of the credit crunch…

Investments That Pay Stock Dividends Like Clockwork

These investments all pay handsome stock dividends like clockwork. And they avoid the volatility swings that now define the stock market, too. What an enviable tandem to have in your portfolio as we embark on what could be another tumultuous year for stocks.

Even better, when the market rights itself – and the inevitable real estate recovery occurs – you’ll be perfectly positioned for a nice pop in the stock price, as well. (That’s right: You’ll own shares that trade on major stock exchanges, not the properties themselves.)

So as the credit crunch bites off more market capitalization nearly every day (we’ve already witnessed $28 trillion in wealth disintegrate before our eyes), the following REIT (real estate investment trusts) has enjoyed a bulletproof status of sorts.

One REIT That Works In the Face of the Credit Crisis

Let’s take a look and examine exactly why this REIT is working in the face of the credit crisis.

First Trust/FIDAC Mortgage Income Fund (NYSE:FMY) invests exclusively in mortgages. The fund holds $100 million in mortgage-backed securities, the income from which allows it to pay a handsome 8% dividend yield.

Now I realize that your instincts may be to skip to the next article after reading “mortgage-backed securities,” but before you do, understand that the fund didn’t lose a penny in 2008 and raised its dividend three times.

To understand how it pulled off this feat, you first have to know a little bit about the market for the securities the fund owns.

You see, the problem with mortgage-backed securities is that once it was discovered that many were backed by bad subprime mortgages, the market for trading them froze up. Thus, trading for the worst securities went “no bid,” which means there were no offers to buy. Using mark-to-market accounting methods, holders were forced to write down values to zero.

But First Trust’s net asset value declined only about 15% over the course of the year, which means the mortgage bonds it holds are the few still being actively traded through this credit crisis.

Dividend aside, there’s a capital appreciation component here, too.

When the day comes where mortgage-backed securities are in favor again (and it will happen), this fund’s share price will surge. So look past the bad apples and focus on the bulletproof.

Source: Bulletproof REIT Bargains: How to Profit From the Inevitable Real Estate Recovery