The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: sherr on February 21, 2013, 07:53:06 AM
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While the US is just recovering from our real estate bubble, there are several other countries around the world that seem to have highly overinflated real estate values at the moment (Canada being the example that's closed to home, and possibly Australia and others as well). Is there a way capitalize on an impending real estate bubble burst (using money-I-can-afford-to-loose only, of course)?
The thought occurs to me that one could short an ETF of an REIT that invests in the market in question, but that seems highly abstract and (at least to me - someone how has never shorted anything before) scarier. It also does not take into account the possibility that the REIT is already correctly priced given the expected imminent crash.
Are there any better or more direct ways that one can turn inflated real estate values to their advantage?
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Most betting against bubbles does involve shorting the various companies which depend on that industry (home builders, home repair companies, etc.).
Alternatively you could look for investments to go long that move inversely to that - i.e. if house prices fall, what industries will be stronger?
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As a canadian, my strategy regarding this will be to wait till the word is out in the media (full on bubble burst, people ranting against home ownership in MSM time) and buy stuff that has overcorrected: banks, some (commercial/industrial) REITs and also, obviously, real estate (mostly appt buildings though). And then pounce.
So prepare a war chest that is easily accessible (i.e. not in RRSPs/401k), and wait it out.
Looking forward to other people's opinions.
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How about stockpiling cash (or other assets that can easily be sold) so you can buy in after the market drops?
As a canadian, my strategy regarding this will be to wait till the word is out in the media (full on bubble burst, people ranting against home ownership in MSM time) and buy stuff that has overcorrected: banks, some (commercial/industrial) REITs and also, obviously, real estate (mostly appt buildings though). And then pounce.
Isn't it true that you can not simply walk away from mortgage debt in the Canada? It seems to me that, when the bubble does pop, it won't be as dramatic as in the US. It may be more of a long term languishing and less of a hard fall.
Because of this, I think shorting REIT's might be a dangerous proposition because the bubble can easily last a lot longer than your funds.
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Whenever I think to short something, I am reminded of this:
"Markets can remain irrational longer than you can remain solvent"-John Maynard Keynes
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You could buy puts on Home Capital Group. I think a decent number of hedge funds view it as a Canadian housing "pure play".
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Short commodities.