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Shorting the housing market ... a la the Big Short?


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So I've not really looked in to this in any detail, but what would be the best way to do this? And is this something others are doing?

I can see there are a number of housing ETF's/house builder ETFs:

https://www.google.com/search?q=housing+etf&rlz=1C1AFAB_enGB460GB460&oq=housing+etf&aqs=chrome..69i57j0l7.4855j0j7&sourceid=chrome&ie=UTF-8

https://etfdb.com/etfdb-category/real-estate/

https://www.investopedia.com/terms/s/sector-etf.asp

Or is there specific mutual funds? Or would it not work like that? Would you do a spread bet on the ETF? etc etc....Basically would love a dummies guide on how to go about this.

Also is there UK based equivilents? 

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This article is about an oil Exchange Traded product rather than a house builder ETF but it describes very well the "create-to-lend" phenomenon when shorting an Exchange Traded product.

FT Alphaville: How hedge fund shorting triggered the USO’s epic AUM growth (Registration but not subscription required.)

Briefly, if a would-be short seller wants to short a stock then they have to borrow it from a Prime Broker.  If no Prime Broker has the stock to lend then the would-be short seller cannot proceed.  This acts as a form of brake on short selling.

If a would-be short seller wants to short an Exchange Traded product then they have to borrow it from a Prime Broker, as they would for a stock.  However, if the Prime Broker has no ET product to lend then the Prime Broker can pay ET product Authorised Participants to create more ET product.  The above brake on short-selling does not apply.

There's more in the article and the comments, including what happens when the PB and the AP are the same bank.

Edited by Will!
Registration for FT Alphaville is free with no commitments.
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Many thanks @Will!

Clearly lots more reading/research for me to do into this! And useful article too, found it by googling the title.

I thought one way may have been as simple as shorting of the real estate investment trusts(REIT)? But I guess it's not that straightforward?

image.png.84f108ffbbe447b05f63cf4ceaed4783.png

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You can't really short "the housing market" as it's a nebulas entity.  You can short components of the market itself though, as you've already alluded too.  As with any short selling, there is a high element of risk involved - markets don't always behave in ways which are at all predictable, and 9/10 it's private investors who get shafted, rather than the professionals who will always have the upper hand. 

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Not looked for years but you used to be able to take long or short spread bets on the average UK house prices on IG index. 
 

As gains would be tax free a simple way to short the Uk market would be to open an account with IG index, fund it and take a short position. Pretty sure they update monthly for Uk house price average. 

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35 minutes ago, highcontrast said:

p.s. interstingly, the American Real Estate ETFs don't look like theyve been doing too well? And that's before the crash?:

image.thumb.png.ec8c83d41d7d2c865697f12f94d58824.png

 

It's worth keeping in mind that trading of Real Estate ETFs may be suspended if PBs want to sell back to APs and the APs can't liquidate the real estate fast enough to pay for this.  If trading is suspended then you won't be able to close your short and you'll have to continue to pay borrowing costs until trading restarts or the ETF is closed down.

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8 minutes ago, Locke said:

Wasn't the main point of the film that even though he was right, he almost lost everything because the whole system was rigged?

Yes, Iirc several 'characters' in the film saw the same thing and had the same idea but just couldn't keep the plates spinning long enough to benefit from the eventual collapse of the market. 

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6 hours ago, Locke said:

Wasn't the main point of the film that even though he was right, he almost lost everything because the whole system was rigged?

Not really, the main point is he was right, saw it early, actually acted and made a pile of money.

I thought he shorted the Bank share prices, not house prices anyway.

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  • 417 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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