Why I’m Calling A Top In The Housing Market and How To Play It

real estateBillionaires Portfolio: That’s right folks I calling the top in the Housing Market (NYSEARCA:IYR) today as we speak. Remember I am the person who:

  • Called the Top in Gold and Silver this year.
  • Called the Top in Emerging Markets.
  • Called the Top then the Bottom in Apple Inc. (NASDAQ:AAPL).
  • More importantly 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 (who was educated at The Johns Hopkins University and The University of Chicago) and nationally quoted writer (Barrons, Forbes and CNN Money) am telling you that the Housing Market has topped and is in a bubble that is going to burst big!

Why? Its simple interest rates, hedge funds and 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.

Well now, that same 30 year fixed mortgage costs over 5%, with many banks quoting a 30 year mortgage rate at 5.2%, that is a 50% increase in your payments and your cost to buy a home, in just two months. Do you think anyone is going to be ok with that? Of course not.

Who in their right mind would pay 50% more for the same thing 2 months later, and that is exactly the psychology of what every new homebuyer has right now, and why we will see a huge dip in the sale of new and existing homes.

Bottom line mortgage rates have jumped 50% in 2 months, this is an unprecedented move in history and will cause major ripples through the mortgage and housing industry and its stocks.

Secondly the majority of existing homes that have been purchased, somewhere around 33% were 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 as many of these top distressed hedge funds and private equity funds have stopped buying homes for investment purposes because prices are too high now 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, as two forces: retail buyers and institutional buyers have stopped and will stop buying new and existing homes, and what happens when the demand curve shifts down aggressively, well its just basic economics folks… prices drop and they drop quickly.

So 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 (NYSEARCA:XHB), it has options, put options that 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, momentum or technical analysis, just look at a chart of the S&P Homebuilders (XHB), it has formed a Bearish Head and Shoulders Top and is projecting a 25% decline for this ETF.

Remember again this trade is for anyone who owns a home, is in the real estate business or just wants to make some big money, you want to buy the September $29 (XHB) Put Options, these put options expire on September 21, 2013, giving us 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).

Let me repeat this one more time, you want to buy the September $29 SPDR S&P Homebuilders (XHB) Put Options, this option is dirt cheap about a $1.19 and leaves us almost 3 months for my thesis to play out.

So if you sell your house before the crash or when I make you 300% on this option trade, you will not only know who is the best trader and economist on the street, but I will have saved you and your family’s nest egg for years.

william meadeWritten By William Meade From The Billionaires Portfolio

William Meade is the President of Pure Alpha Research, a hedge fund consulting and investment research firm. He is the former Director of Research at Zacks Investment Research in Chicago. Before that, he was the lead analyst at a top performing $1.2 Billion dollar institutional investment firm and hedge fund. Mr. Meade has a Masters in Applied Economics from The Johns Hopkins University. Learn more about William Meade and how he follows Billionaire Investors into stocks by visiting the Billionaires Portfolio.

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