Government-backed debt is still the preferred venue for those interested in getting ahead of the housing curve, with plenty of risk aversion still looming over stocks and real estate investment trusts.

It’s not that there isn’t a belief that housing isn’t in the process of forming a bottom, but rather that there’s still too much risk to make big bets on the sector right now, regardless of the investment class.

If you’re a betting fellow, go ahead and play housing if you want, says Peter J. Tanous, president and director of Lynx Investment Advisory in Washington, D.C. But I am disinclined to take that kind of risk in this kind of environment.

Outside of actually buying real estate, those willing to place bets on the industry have three broad options, the most popular also being the safest.

Fannie and Freddie Bonds

With the federal government sinking a nearly $1.5 trillion stake into agency-backed securities, the debt of nationalized mortgage companies Fannie Mae and Freddie Mac are the two easiest ways for investors to wade into housing.

Yields on the two are running well ahead of the anemic 2.8 percent returns on 10-year government debt, with recent auctions as much as 83 basis points higher than Treasury bonds. Ginnie Mae. the government’s only mortgage bond insurer, also is part of the government-backed programs.

And government backing through its alphabet-soup liquidity programs provides ultimate investor protection.

To the extent that an investor is trying to be very conservative in credit quality but get some yield pickup over and above what you would achieve in Treasurys, mortgage-backed securities provide that, says Jim DeMasi, managing director and chief fixed income strategist at Stifel Nicolaus.

It’s a way of remaining relatively conservative in your bond portfolio but still stepping out of Treasurys into that next step up on the risk spectrum. but not venturing into some of the riskiest sectors of the corporate bond market, which we think will still be volatile as the economy evolves over the next couple of months.

Indeed, there seems little to dissuade investors looking to hedge risk from getting into the Fannie and Freddie debt.

The guarantees are no longer implicit, they’re explicit, Tanous says. Why wouldn’t you?

The exact opposite of Tanous’ question seems to pertain to stocks: Why would you?

Despite a boost in home builder stocks Wednesday brought on by the merger between Pulte Homes and Centex, there seems to be little enthusiasm for big equity plays on real estate.

Everybody wants this to be a bottom. That’s so clear, says Kathy Boyle, president of Chapin Hill Advisors in New York. I just don’t trust this market. We think it could go either way.

In fact, Boyle has decided to go the other way.

Her only equity play on the housing market is a bear exchange-traded fund that bets against the commercial real estate market.

The ProShares Ultra Real Estate pays double on moves lower in the Dow Jones U.S. Real Estate Index. While the ETF moved lower Wednesday, it is up about 13 percent for the week, and Boyle notes that it declined only slightly in the face of the Pulte-Centex deal and news that mortgage applications were higher last week.

Boyle says housing stocks now are so cheap that they’ve primarily become trading vehicles and can’t be used as reliable guides for for the state of the industry.

What happens is a lot of individual investors are now trying to trade because they lost their job. You have people looking for cheap stocks, and that’s probably what drove the financials, she says. Non-institutional (investors) are hopping in them at $6, and if it goes to $7 you just made a lot of money that you can’t make elsewhere.

If housing does recover, it may well take the rest of the market with it, making an isolated bet unnecessary.

If indeed housing turns it will have a positive impact on the whole market, Tanous says. In that scenario I would prefer to play a safer bet, which is not to pick one industry and hope for the best.

Instead, Tanous also is using an ETF, the PowerShares S&P BuyWrite, which collects premium income through call options on the S&P 500, for his broad-market strategy.

The iShares Dow Jones US Real Estate Index ETF. which tracks the industry, was higher Wednesday but is down about 30 percent in 2009.

Real Estate Investment Trusts

The REIT industry, once a darling of investors, still has mostly positive 10-year returns but has been getting pummeled for the past three years, and there’s little relief in sight.

The FTSE National Association of Real Estate Investment Trusts Equity Index is off 28.9 percent this year though April has been a better month for REITs across the board. The shopping center index is up more than 11 percent this month, and the Dow Jones REIT indexes were more than 1 percent higher Wednesday, but there is still little appetite for the investment class.

My position on that is very simple: What is the risk reward? says Michael Kresh, president of M.D. Kresh Financial Services in Islandia, N.Y. If the risk is high and the reward is low you just wait for better opportunities.

Kresh says REITs could be a good investment in another six months. Until then, he likes corporate bonds and says some stocks on the periphery of the housing industry, such as infrastructure and utilities, could move higher

The sentiment is echoed through much of the investing community.

While there’s been some positive signs in the last couple of months, it’s still very early, Stifel’s DeMasi says. I would continue to be cautious on the home builders.