That’s right folks. I am calling the top in the housing market. Remember I am the guy who:
1) Called the top in Gold and Silver this year
2 Called the top in Emerging Markets
3) Called the top, then the bottom in Apple
4) And more importantly, I told you to buy to every dip in the stock market this year, therefore making you a killing if you trade options, futures or leveraged ETFs.
So now, me, the former top hedge fund manager, top Economist (educated at The Johns Hopkins University, trained by Fed and Treasury economists) and nationally quoted writer (Barrons, Forbes and CNN Money) … I am telling you that the Housing Market has topped and is in a bubble that is going to burst, BIG!
Why? It’s simple analysis of interest rates, understanding of hedge fund flows and basic psychology. If you were in the market to buy a house or condo just as early as May, you could have purchased a 30-year Fixed Mortgage for 3.5%. That is incredible. And that’s why people went out and purchased new and existing homes.
Now, that same 30-year fixed mortgage is being priced as high as 5%. That is a 50% increase in the total interest paid over the life of the loan. Not to mention, given the rise in housing prices, the price tag on homes in some areas of jumped as much as 35%+.
Who in their right mind would pay 50% more for the same asset two months later? That is exactly the choice being given to the new homebuyer right now. They will back off. And that is why we will see a huge dip in the sale of new and existing homes.
Bottom line: The spike in mortgage rates will cause major ripples through the mortgage and housing industry, and its stocks.
Secondly, around a third of the housing volume has been purchased by hedge funds and private equity funds over the last 2 years. That’s right, all those record home sales you heard about on the news has been driven by distressed hedge funds and private equity funds like Blackstone, who have purchased millions of homes out of foreclosure. But this game is over, for now. Many of these top distressed hedge funds and private equity funds have stopped buying homes for investment purposes because prices are too high, and there are not enough cheap homes to buy.
So put those two elements together and you will have a major shift in the demand curve. Both retail buyers and institutional buyers have stopped the presses.
If you own a home and want to protect its value, or you just want to profit off the housing bubble bursting once again, your friendly neighborhood hedge fund trader is here to help you!
So here is what you do: There is an ETF called the SPDR S&P Homebuilders (XHB). It has options. Put options here allow you to bet directly against the housing market, and these options are very liquid and cheap.
Also if you like to look at charts, take a look at a chart of the S&P Homebuilders (XHB), it has formed a bearish head and shoulders and is projecting a 25% decline for this ETF.
The September $29 (XHB) put options give plenty of time for people to realize that the housing market has topped, and for summer to pass as well (when a lot of people shop for homes).
President of The Billionaires Portfolio