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How to bet against a housing market?

By FortWayne follow FortWayne   2012 Jul 23, 2:03am 10,675 views   17 comments   watch   nsfw   quote   share    


I'd like to make a bet against the CA housing market. Too many signs point at another crash coming in the prices.

My reasons:

1)I'm seeing a lot of novice (and calling them novice is giving them a lot of credit) investors, way too many, who are delusional and arrogant, and that attitude is usually a signal of an upcoming pain.

2) I'm seeing prices close or above 2005 in many areas and am very convinced that crash/adjustment is coming since fundamentals of everyone being broke have not changed... it's just like 06 all over again except this time it's the middle men investors and not the buyers going nuts.

3) Government recently cashed out of these derivatives.

How would you play that on the wall street? What kind of put or call would I need in order to bet on prices crashing in that time frame...?

Relevant link:
http://seekingalpha.com/article/315116-phoenix-phenomenon-why-real-estate-everywhere-will-eventually-drop-over-50

#housing

1   FortWayne   ignore (4)   2012 Jul 23, 2:31am     ↓ dislike (0)   quote   flag        

robertoaribas says

case-shiller city indices

Hey Rob you might be interested in this:
http://seekingalpha.com/article/315116-phoenix-phenomenon-why-real-estate-everywhere-will-eventually-drop-over-50

The author thinks Phoenix and a few others was a good place to buy real estate and it will be the first place to recover. Where the rest of the country is still going to go through that.

"I think that most of the world will end up following the path of Las Vegas, Orlando, and Phoenix. These cities were simply several years ahead of most other places, because for whatever reason people panicked earlier than the average.
...
The rest of the world will eventually become like Orlando and Phoenix, probably as the above two cities have already begun to enjoy a real-estate rebound because the earliest losers often become the first to recover."

2   freak80   ignore (4)   2012 Jul 23, 2:32am     ↓ dislike (0)   quote   flag        

FortWayne says

I'd like to make a bet against the CA housing market. Too many signs point at another crash coming in the prices.

I wouldn't make bets on future housing prices. Too much risk. One thing I've learned from investing: one can make a compelling case for almost any speculation. Usually things turn out differently.

3   someone else   ignore (0)   2012 Jul 23, 4:41am     ↓ dislike (0)   quote   flag        

You could try to short (or buy puts on -- safer) the companies that will get hurt when housing falls.

I totally should have done that with PMI, Fannie, and some banks, but was too chicken.

Who is left that will get hurt when housing falls again?

4   freak80   ignore (4)   2012 Jul 23, 5:08am     ↓ dislike (0)   quote   flag        


Who is left that will get hurt when housing falls again?

Anyone that doesn't have access to politicians and/or Sugar Daddy Ben.

5   FortWayne   ignore (4)   2012 Jul 24, 12:41am     ↓ dislike (0)   quote   flag        

wthrfrk80 says

Who is left that will get hurt when housing falls again?

Anyone that doesn't have access to politicians and/or Sugar Daddy Ben.

Of course, but I'm trying to figure out something more specific. It's not like there is a list of companies that belong to the special people club.

6   freak80   ignore (4)   2012 Jul 24, 1:01am     ↓ dislike (0)   quote   flag        

FortWayne says

It's not like there is a list of companies that belong to the special people club.

Yes there is: it's the list of Big Banks that got massive bailouts at public expense.

7   someone else   ignore (0)   2012 Jul 24, 2:16am     ↓ dislike (0)   quote   flag        

The builders don't get the special treatment that the Fed gives the banks, so maybe you could buy puts on the builders, assuming they ever recovered from the first bust.

8   CornPoptheOriginalGangster   ignore (5)   2012 Jul 24, 7:04am     ↓ dislike (0)   quote   flag        

Wayne, great article man.

9   everything   ignore (1)   2012 Jul 24, 8:17am     ↓ dislike (0)   quote   flag        

Mortgage interest rates will just go lower yet is all, where buying and renting works out positive cash flows for the investors. The crash is over, the banks will come out ahead no matter what so you can't short those. Builders will ramp back up, can't short those anytime soon.

Invest in property management, it's going to be booming.

10   New Renter   ignore (11)   2012 Jul 24, 11:52am     ↓ dislike (0)   quote   flag        

Call it Crazy says

FortWayne says

1)I'm seeing a lot of novice (and calling them novice is giving them a lot of credit) investors, way too many, who are delusional and arrogant, and that attitude is usually a signal of an upcoming pain.

I think there will be a short term "pop" from these investors who are pulling their money out of the stock market thinking they can get a "better return" on investment property and becoming a landlord....

Give them a year, and when they see the "hidden" costs of fixing all the crap the tenants bust up and have to start hiring crews to for replacing and repairing their investments, that 5% return they thought they were going to get will go "poof"!!!

I expect many of these properties will return to the MLS inventory....

That's CRAZY!!

sorry, couldn't resist :)

11   moonmac   ignore (0)   2012 Jul 24, 8:10pm     ↓ dislike (0)   quote   flag        

1/3 of home sales are all cash investors, a 1/3 are investors using cheap financing, and the remaining 1/3 are people actually going to live in the home. It's pretty easy to determine whether a home is empty or not after a few quick-drive by's. Porch light and interior light on 24/7, garbage never out, tall grass with limited landscaping, no sign of people or cars, mailbox flag never up, curtains never closed and of course previous for sale signs are all good indicators. Higher end properties and fixer-upers are the only homes being listed. Move in ready average price homes are being kept off the market with banks playing musical For Sales signs but I see what they're doing. Homes and have seen under contract signs and sold signs just 6 months ago on numerous homes still empty. Most Boomers I know are all at the point of selling to downsize or moving to lower cost of living areas while drawing down on all spending. Half of all 2009 college graduates don't even have jobs so there is no way all these empty homes can ever be filled without dramatic price decreases in high priced areas which of course will make low cost areas even less desirable. All my years of living I have never seen so many empty homes it's not even close! Everyday I drive around and say to myself "Good God, who in the F*** is going to buy all these empty homes"? Funniest part is they keep building more and more...

12   ohomen171   ignore (0)   2012 Jul 24, 9:09pm     ↓ dislike (0)   quote   flag        

I would apply the same principals that Mike Burry did to make $700 million-use CDC's to bet against mortgage-backed securities.

13   jan   ignore (1)   2012 Jul 24, 10:09pm     ↓ dislike (0)   quote   flag        

yeah, unless you really are going to live in a house, I would stay away from them, too much pain on the downside to come in January I think, but don't trade on me, what the heck do I know? Bush tax credits expire and changes to medicare, 80B each out of ssi and military, China commodities drop, and the wopper obama care. So I think it's january or there abouts.

14   HomePriceFuturesTrader   ignore (0)   2012 Jul 25, 12:49am     ↓ dislike (0)   quote   flag        

I'm the market marker for the CME S&P/Case Shiller products traded on the CME. There are futures contracts where one can express a view on California CS indices for LA, San Fran, and San Diego at various points in time out to Nov. 2016. I believe that these futures may be the best "pure play" on forward home prices. Current contract prices have >10% price INCREASES (relative to the most recent CS index) factored in for Nov 2016 and all contracts from 2013-2015 are higher than today's index levels. Quoted bid/ask spreads are 1-2% (with LAX the tightest) and it's possible to negotiate trades at inside levels.
Check out the CME website or mine (www.homepricefutures.com) if you'd like to learn more about this strategy.

BTW- Options are listed for LA (and can be created for SF and SD) but have not traded since re-launched this spring.

15   FortWayne   ignore (4)   2012 Jul 25, 1:46am     ↓ dislike (0)   quote   flag        

ohomen171 says

I would apply the same principals that Mike Burry did to make $700 million-use CDC's to bet against mortgage-backed securities.

That's what I'm trying to do here, just on a much smaller scale.

16   Ignatius Pugg   ignore (0)   2012 Jul 25, 11:22am     ↓ dislike (0)   quote   flag        

everything says

Invest in property management, it's going to be booming.

How would one go about doing that?

17   freak80   ignore (4)   2012 Jul 25, 11:28am     ↓ dislike (0)   quote   flag        

Ignatius Pugg says

How would one go about doing that?

Buy shares of the Roberto Aribas Corporation (ticker: RARB).


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