How to take advantage of a housing bubble?

[Sam]

Many of you here have extensive experience in non-commercial real estate, having gone through up and down cycles. Please share your experience and wisdom.

How can one take advantage of a housing bubble? For example, in another post, people reported 40 to 50% appreciation in home price in Calgary last year! This "gold-rush" type appreciation is crazy, and not sustainable. As a business person, an investor, what would you do? What can you do?

 

[tryan]

At the risk of repeating myself ... at the bottom CASH WILL BE KING; so save your pennies.

Bought a dozen properties north of Boston 1993-1995 ... most were HUD/RTC auctions - cash due in 30 days. Then moved on to REOs. Most banks would only take CASH for thier REOs. The banks were taking NO chances that the thing was coming back to them. Lenders locked out investors because they were still licking thier wounds.

Was able to get "in" with one REO manager who gave me loans with 20 % down 1 pt. below thier standard rate. Closed 4 properties with that bank (every time I saved up a deposit, I went shopping ). Then Mr. Market moved UP and the REOs started flying off the shelves ... no need to haggle with me anymore .

Still carry 3 of these properties today.

 

[Sam]

At the risk of repeating myself ... at the bottom CASH WILL BE KING; so save your pennies.

OK, that's easy. I'm interested in the "before-the-crash" scenario. Stock analogy: Company xyz stock is going crazy (think dot.com era), shorting that stock would be a way to capitalize the bubble.

 

[macdaddy]

There's no easy way to short a house...

 

[justin]

Isn't there a derivates product on one of the markets that you can buy and sell to make bets on housing indexes? Maybe the CBOT?

 

[Sam]

There is. I don't remember what they are called. Last time I checked, they were not worth it. That market is still too new, and thus very inefficient.

 

[eridanus]

The Case-Shiller derivatives are on Globex. It's fairly illiquid, but I took a bite and I'm short LA and the national composite. Shorting Boston would've been very profitable.

 

[kcowan]

Do you know how they do this? How sound is the fund?

 

[eridanus]

The Case-Shiller index actually looks at existing sales prices for the market in question. All of the cities were normalized in January 2000.

They trade as futures and they settle depending on the index value, which is released the last Tuesday of each month.