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Shorting the Australian Housing Market - Make Money From Property Crash; Short the property market
Topic Started: 14 Apr 2011, 07:33 PM (20,958 Views)
Catweasel
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jrsnr
1 Jul 2011, 12:51 PM

It is in this respect that I do not consider that the government is bailing out deposit holders. In short they would probably recoup all of this money anyway. In most likelihood preferred bond holders would receive a haircut. Subordinate bond holders have a very high likelihood of being in the same boat as shareholders, that would be the boat at the bottom of the lake! Personally, if a person is not aware of the risk profile of the investment they are entering into then due diligence is lacking. Kind of makes you take a second look at the superannuation industry and it's preferred investment vehicle, i.e. the stock market!
Catweasel say a yes. As Chris the Joye point out, a superannuation the bigger scam than a mouse house. At least a 30% Many white shoe feeding off both a super and a mouse house business to make the living.
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zaph
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jrsnr
1 Jul 2011, 12:51 PM
In general you are right, the structure of payout from liquidation of assets (for a bank failure) is deposit holder, bond holders (preferred followed by subordinate) and finally shareholders.
that's all about to change.

do some research on covered bonds. herehere might be a good place to start.

covered bonds trump a deposit

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Lawmakers are expected in coming months to change existing legislation that currently ranks depositors above all other creditors, in effect clearing the way for Australian lenders to issue covered bonds. Once the new laws are enacted, which CBA expects to happen toward the end of 2011, the bank will be ready to test the market.
"We will look to be issuing covered bonds either by the end of 2011 or early 2012," Cobley told Dow Jones Newswires in an interview. She said the new funding instrument will allow the bank to diversify its funding sources, and both local- and foreign-currency issuance will be an option.
Draft legislation set out by the government caps covered bond issuance at 8.0% of a bank's assets, which in the case of CBA's balance sheet would equate to A$30 billion-A$35 billion in total funding, Cobley said.
"We estimate we can do around A$5.0 billion on an annual basis, if not a little more, but clearly it is going to depend on our funding needs; we are in a slow growth environment at the moment," she said.
Both local and offshore markets are an option for the bank, Cobley said, noting domestic senior unsecured issuance remains attractive at the moment due to the effect of the cross-currency basis swap.
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jrsnr
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zaph
1 Jul 2011, 01:13 PM
that's all about to change.

do some research on covered bonds. herehere might be a good place to start.

covered bonds trump a deposit

Thanks for that one, I remember reading about these a few months ago but for the life of me couldn't remember the name of them. Certainly seems like they are a definite go ahead.

The way I understood the covered bond was that the bank segregates the assets purchased using the bond finances and that in the event of bank failure the rights to the asset pool is as you stated to the covered bond holder.

I do remember reading that they are used in some other countries, but beyond that I am totally unaware of any of the more subtler details involved. Maybe I've got some more reading to do!
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carter
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Tasman Vagrant


Shorting the Canadian housing market....Is it possible?

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Shorting the Canadian housing market....Is it possible?

JULY 14, 2011

Those who are familiar with this site will know that I feel that we have a housing market in Canada that has been driven over the last decade primarily by three unsustainable factors: 1) An unprecedented expansion in debt relative to income and GDP, facilitated by an easing of lending requirements by CMHC and an ill-advised removal of the maximum mortgage cap in 2003; 2) A falling interest rate environment; 3) A shift in mass perception regarding the ‘investment worthiness’ of residential real estate. It is now all but a given in most people’s minds that the moment you have the ability to buy a house, you do it. Rent/ownership cost differential be damned....You gotta own that sucker!

However, I have also been careful not to paint the entire country with the same brush. Hence, I have examined as much regional data as I can (check out the primer articles for yourself...). The reality is that the Kool-Aid is being gulped back with reckless abandon in some locales, but not nearly as much in others. So let me be clear about what I mean when I say we have a national housing bubble: The national average resale price is substantially overvalued relative to national average incomes. It will come down, dragged lower by carnage in most of BC, with Vancouver as the epicentre, and most other large Canadian centres. Toronto proper will get slapped, while the condo market will be crushed. Other areas will likely stagnate or experience relatively minor decreases. This is how a correction plays out.

The long and the short of it...

One question I often receive is how to protect one’s self in the event of a major meltdown as seems inevitable for Vancouver. Case in point, consider ‘N’:

Please would you consider sharing your thoughts on how one could short a local property market.

I live on west side of Vancouver and built a new home on a site of an old home that we owned. I’m mortgage free but the current value of my home as a % of my net worth is stupid. I should sell, lock in my gain and rent a house in the area. The rented house wouldn’t be as nice as our current one but from a financial perspective it’s as close to a no brainer as one could get.....financial independence in return for a slight step down in lifestyle!!

Tragically though, my boss (wife) views this logic as irrelevant because she doesn’t want to move. So how the heck can I short the west side of Vancouver market such that when it almost inevitably corrects, I don’t lose a big chunk of the equity that I have today? I’m more than happy obviously to forgo future gains to short the market – heck, would be prepared to sacrifice some of the notional gains I’ve made recently to hedge.

Finding a counterparty is the issue I can’t wrap my head around. Finding a buyer who’d be prepared to enter into a very long term lease with me would be great but I can’t imagine why any buyer would be prepared to do so.

Maybe I should take a large ad in a paper advertising my house for sale at a 10% discount to current market price in return for a 10 year

The truth...

I probably get one email a week asking variations of this exact question. Here’s the bummer: There is no other asset that has a strong, predictable, negative correlation to a regional housing market. I have no earth-shattering answer to this question. Perhaps one of my readers might?

I know that if I was in Vancouver and could sell my dig and lease it back without having to move, I would do it in a heartbeat. I would caution that while I think it is an interesting idea, not being particularly familiar with the Residential Tenancy Act in BC, I’m not comfortable commenting on the potential legal pitfalls involved with that option. Perhaps one of my knowledgeable readers might cover that one.

Most people erroneously believe that shorting REITs (real estate investment trusts) will give some protection, but I wouldn’t go there. Most REITs deal in commercial real estate, a different ball game altogether, though a BC specific REIT, particulalry one that is heavy on malls, would certainly be under downward pressure in the event of a major correction. A housing bust would weigh on consumption, as discussed previously. Such a BC-specific REIT does not immediately come to mind. Again, perhaps one of my readers can chime in here....You can tell I’m writing off the top of my head here....and it’s been a long day.

Without a doubt, the best trade would be to short a publicly traded BC credit union. These guys have done far less securitizing than our big banks, which have actually decreased their exposure to Canadian residential real estate over the past three years as the securitization market is currently consuming over 100% of new mortgages....go figure! This means that many of the mortgages originated by these credit unions are still on their books. They have been aggressively pushing mortgage loans offering terms that the big banks simply won’t touch. Furthermore, they are far more likely to fund their mortgage lending via depositors, a combination that may turn toxic as loans become un-recoverable. With mortgages in arrears already rising in BC, and with the strong correlation between default and negative equity, even in recourse jurisdiction, things could get flatly ugly. But here’s the catch. Good luck finding a BC-oriented, publicly traded credit union with sufficient liquidity to find a borrow.

The follow up point here is that if you have deposits with a BC credit union, I’d be checking the deposit insurance limit and making sure my total deposit was well under that amount.

So where does that leave us? Frankly....stuck. There’s no convenient way to hedge your real estate exposure. But should you sell? Let me again stress that I have NEVER flatly suggested that all people would be wise to sell. You can verify that here. The reality is that real estate has among the steepest transaction costs of any asset. You get taken hard when you sell. Factor in legal fees, moving expenses, a cranky spouse as you pack up your belongings, the significant impact on school-aged children, etc. and you can see why I have never made that suggestion lightly.

In the bubbliest locales (Van, Victoria, Toronto (particularly condo market) etc), I would think long and hard about looking into an arrangement like what ‘N’ suggested. For other cities where there is froth, but likely not carnage on the horizon, the best advice I can give is to find a way to be emotionally ‘okay’ with seeing your equity go up, down, or sideways....with significant emphasis on the middle one. To figure out just how ‘bubbly’ your area is, see point #3 below.

Who would be wise to consider selling? How do you know if you're one of them?

Here are the groups of people who I think would be VERY wise to sell and rent, particularly if they can find a sucker investor to take their home off them and lease it back from them:

1) Anyone within 5 years of retirement who is counting on funding a significant portion of their retirement with home equity. If downsizing is in your plans, do it now. Price compression will occur first and last longest in the upper end of the market.

2) Anyone with less than 15% equity who knows there will be a good chance that they will have to move within a couple years. Negative equity sucks. You don’t want to have to show up at the bank with a cheque after selling your house. And by the way, considering that transaction costs are typically in the 5-7% neighbourhood, and given our psychological tendencies to overestimate the value of our beloved nests, let me suggest that you have less equity than you think.

3) Anyone in ANY area where the price/rent ratio for their home is wildly out of whack and where they can structure a deal to rent it back from the purchaser under a long-term, secure lease. Figure out what the rent would be on a comparable dwelling in the area (kijiji is good for this....so are local realtors, though they have a tendency to overstate). Multiply this by 12 to figure out the annual rent. Take a reasonable estimate of the value of your home (by reasonable, I mean you should probably lop 5% off of your assessment). Now divide the house price by the annual rent. Less than 20, stay put (long-term average is closer to 15, but the low yield on all assets skews that one). 20-30, I’d think long and hard about it. Over 30, I’d be jumping ship.

That’s about all of the insight I can give on that question. I wish there was a security that better fit the bill as a hedge against real estate calamity in Canada. Maybe some of our knowledgeable readers may want to chime in...

Cheers,

Ben
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Admin
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http://www.bbnasset.com.au/short-bank-series/

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BBN Short Bank Series

A financial product has been created aimed at investors concerned with the exposure Australian banks have to housing and potential disruptions in the global markets. That product will potentially benefit from a decline in the share prices of two of the largest banks in Australia and is named BBN Short Bank Series.

You can view further information about this innovative investment opportunity by downloading the Product Disclosure Statement (PDS). An application form is included in the PDS and applications close 7th October 2011. You should read the PDS carefully before making a decision to invest. In addition to your application, you will be required to include full details of your identity including a certified photograph and details of a bank account. If you require a printed copy of the PDS, please call us on 02 4940 4630 or email us on sbs@bbnasset.com.au with your full postal details and Product Disclosure Statement in the subject line.

http://www.bbnasset.com.au/images/pds.pdf

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ASX and RPData-Rismark announce daily house price index
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Australian Real Estate About To Go 'Down Under'

September 12, 2012

As Europe continued to receive bailout after bailout, delaying the inevitable, we look east to see what else to expect from the oncoming financial Tsunami of debt.

One economy that is centre focus is Australian, residential real estate in particular. It seems only rational that with the debt cloud is spreading around the global, that Australia - another Western Economy would be the next domino to fall.

It is highly possible that emerging Asian economies and Australian will become the next victim of the debt crisis. Both the US and the EU zone are now facing prolonged recessions, we find it extremely different to avoid the blow given that two of the biggest markets have slowed.

My fellow Australians disagree. Australia is different, they argue. We're not like the US or the Europeans. "This time it's different."

How many times have you heard that before?

. . .

How do you get into this trade?

For those who want to take advantage of this trade, the easiest way is to short the Australian Dollar. Similar to the Fed, the RBA - Australian Central Bank will begin cutting interest rates and printing money, causing the devluation of the AUD. There are several ETFs that do this with very interesting names. GDAY is the short AUD/USD pair. While CROC is the x2 short AUD/USD pair. There are also pure FX accounts that do the same thing. However, please take caution investing in any ETF or structure product.

Read more: http://seekingalpha.com/article/863701-australian-real-estate-about-to-go-down-under
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Shadow
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Catweasel
15 Apr 2011, 06:27 AM
Catweasel say a idea not a make a money from a crash, but to not a lose money from a crash. Even the now, it expect that a many already a losing money from a investment property. A further the more, many a mouse buying the house as a insurance for its "old age." Financially, it could be a horrible the decision for variety the reason. For the example, mouse buy on expectation that increase by a value it see in a past (this single the big threat) so it commit too many the resource to join a mouse herd. Big a problem with a property is that mouse (or even expert) cannot quantify the extent of irrational exuberance in a market. Therefore, there the big gap in a perceived and a real (in a monetary term). Bank and white shoe will talk about "the market value" but mouse need a remember that a market value is a sum that a include all a interference, rigging and emotional confusion. All this need to be a included in a risk management, except a mouse have no the ability to quantify it. Therefore, when it play with a mouse in a property market, it not the matter how a smart it is or the how good it is with a Excel, a market value still determined by the irrational mind of the masses. There your risk.

Shorting a bank is the direct a way to make a profit. But it need a remember that bank share price also the very distort and it not operate in a free market. Bank cannot the fail. We a already see that. It a too big to do the fail. Banker man always have a get out of the jail a free card because can always blame on a "unexpected" and "external" and a taxpayer will pick up a bill. So why a logic say it a good idea to do a short of a bank if believe a be a crash, in a reality, it not the so simple.

Back in the days when Catweasel was almost readable...

So, did anyone short the banks or have any other success making money from the property downturn?
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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Stavros
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If you wanted to short the CBA...I could not think of a better time than this afternoon.

Puts 3 years out, strike price of $20.00 a share.

This sucker going down!!!!

I had some dealing with the CBA in recent weeks that have confirmed a few things:
- They are useless in terms of the back office IT system...no one knows what is going on there.
- They are doing anything possible to increase people's credit card limits, obviously looking for a new way to push debt
- They employ the leftovers of the finance industry, i.e. The rejects from Mac Bank

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Pig Iron
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Bogan scum

Stavros
3 May 2013, 12:54 PM
If you wanted to short the CBA...I could not think of a better time than this afternoon.


This sucker going down!!!!

you just keep getting stupider by the minute.
I am the love child of Tony Abbott and Pauline Hanson
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