
You Are Naturally Short Housing - soundsop
http://thezikomoletter.com/2012/12/10/you-are-naturally-short-housing/
======
lotharbot
Broadly speaking: you are not "investing" in any market if you only own the
amount you intend to use or consume for yourself. You are only "investing" if
you own (or have contracts on) more than you intend to consume.

For example, having a few bananas in your fruit bowl does not give you a
position in the banana market. Owning thousands of bananas you intend to
resell, or shorting a banana company, gives you a position in that market.

Likewise with housing. Owning enough housing to live in (at whatever standard
of living you intend) is a market-neutral position, so you should not be
particularly excited by price changes in the market. If you own too little
housing, you're "short" and price raises are a negative, and if you own excess
housing (extra properties, or a larger-than-desired property) you're "long"
and price raises are a positive.

~~~
gfodor
This is an excellent point which deflates most of this article's premise. The
"shelter short" you hold by being a living breathing person is really just
what can be considered livable shelter. For most people, I'd imagine they live
in houses that are well beyond what they could reasonably survive in, so that
portion of the equity position of the house they live in is strictly "long".

This probably is better served by an example. Lets say you buy a $2m home as a
single person. And lets also say you could just as comfortably live in a $250k
home. If house prices go up and your $2m home suddenly becomes a $2.25m home,
you can sell it and get a "free" livable home with the 250k profit.
(Technically that house would be selling for 277k at that point so you get to
buy a "livable home" for $27k, but that's besides the point.) You basically
are now market neutral, whereas before you were long. You will have a livable
home for the rest of your life, as long as your requirements of what is
considered livable do not change.

Where does the "free livable home" come from? $1.75M of your original home was
"long houses". Or, another way to look at it is you were leveraging beyond
your $250k "survivalship position" in housing by 8x, and then scaled back the
leverage to 1x when you bought your second home. This $1.75M was speculation
(or investment, depending on how you look at it :)) in the housing market. The
additional speculative risk you took via the leverage resulted in the market
rewarding you with a place to live.

~~~
nandemo
It doesn't deflate the article's premise.

There are 2 ways we can see your example. Living in 400sq m house when you
only need 40sq m could be:

1) equivalent to living in a 40sq m apartment and owning a separate ~300 sq m
house elsewhere but not renting it. Well, of course in this case you're losing
money as long as you don't rent it. Even if the real estate prices go up and
you finally sell the house years later, you need also to subtract the money
you threw away by not renting it, or say, compare to the situation you didn't
buy the extra house and instead invested the money on Treasuries.

2) Going back to one 400sq m house. Now of course one could claim one's using
and enjoying the extra-space beyond the 40sq m. Later, after the housing price
goes up, you sell it and buy a 40sq m apartment; but this means you're cutting
down on your monthly consumption of housing. So this doesn't deflate the
article's premise either.

~~~
SideburnsOfDoom
> elsewhere but not renting it.

I live in London. if I somehow manage to buy an apartment with spare bedrooms,
damn right I'm renting it out!

~~~
aidenn0
Is that legal in London? It's illegal where I live (Santa Barbara, CA), but
lots of people do it anyway.

~~~
guy_c
Yes it is legal and the Government provide a tax incentive to do it -
[https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-
sc...](https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme)

------
benjaminwootton
I'm surprised we don't see more discussion of house prices on sites such as
this. In my opinion it is THE issue affecting our generation.

Specifically for HN, the high cost of housing _severely_ restricts
entrepreneurship. If you are paying 50% of your income on a rent or mortgage,
you are of course less likely to start a business, and the cost of doing that
business in terms of employees salaries and commercial rents make it less
viable.

Also consider that your suppliers, and their suppliers, and their suppliers ad
infinitum, all have the same high costs ultimately derived from high housing
costs for their employees.

This all adds up across the country and the whole economy is made less
competitive and agile as a result. With lower housing costs there would
certainly be less unemployment.

The sad thing is that the even intelligent people are duped into believing the
myth that high house prices are good for them. Clearly lower prices mean more
disposable income, which is usually a good thing? Clearly high house prices
barely benefit anyone as we all need a house, and the next house you buy would
likely have gone up by a greater price than the one you have now? And yet we
persist - 'we MUST get on the housing ladder' and we blame those nasty banks
because 'they aren't lending any more' when all they are doing is scaling back
lending multiples from the absurd back to the ridiculous.

All that high house prices achieve is to keep young people into debt serfdom,
keeping us on a treadmill servicing massive mortgages for the same bricks our
parents bought for 20% of the price. We really could be out doing something
much more worthwhile.

Edit - you may wish to read this to put the madness of this credit bubble into
perspective:
[http://www.housepricecrash.co.uk/forum/index.php?showtopic=5...](http://www.housepricecrash.co.uk/forum/index.php?showtopic=53593)

~~~
jseliger
Word about this problem is trickling out, slowly—I like to cite Edward
Glaeser's _The Triumph of the City_ and Ryan Avent's _The Gated City_ on the
subject—but I think a lot of people simply don't understand supply and demand.

One time in Seattle I was driving home a friend, who was in law school, and
she complained that there was too much construction in the city, and that
construction made it less affordable. I said that more units make the city
less affordable than it would be otherwise, and she said that they were
tearing down "affordable" housing to put up housing for "rich people."

I tried to explain that, if given space that had 12 units now has 200, the
overall affordability rises, but she totally didn't or wouldn't get that
point. It was a bit like the scene where the Martian and man meet in _The
Martian Chronicles_. Except that I'm right and she isn't. But until more
people connect supply restrictions with cost, we won't get (much) improvement.

(Side note: I just read this:
[http://www.slate.com/blogs/moneybox/2012/12/10/brooklyn_is_c...](http://www.slate.com/blogs/moneybox/2012/12/10/brooklyn_is_cool_it_needs_more_housing_units.html)
on the subject.)

~~~
thisone
>I tried to explain that, if given space that had 12 units now has 200, the
overall affordability rises, but she totally didn't or wouldn't get that
point.

I don't know what your friend's reasoning was, however, I can see an argument
on her side.

If the 12 units that were torn down were worth (and able to be sold for) 200k
each and they were replaced by 200 units worth (and able to be sold for) 500k
each, then that neighborhood is about to change character, and it probably
won't continue to be affordable for the people who can't afford a 500k unit.

~~~
wbillingsley
As I understand it, even if the builder is wrong and they can't sell at 500k
(there are only 200k buyers), affordability still suffers.

Why? Because the developer won't sell the first flat for 200k even if that
turns out to be the highest achievable sale price, because it would mean
immediately having to write down the market value of the other 199. (A paper
loss of 200 * 300k, not just the one lot of 300k). That's going to mean the
flats sit there unsold for a long time, while the developer holds out hope of
finding high value buyers that don't materialise.

Net upshot, for a significant period the developer has reduced the available
housing by twelve 200k flats (the replacement two hundred are effectively not
available for sale at the going rate).

------
csallen
I know next to nothing about trading. But it's become apparent to me that some
of the core concepts/terms in trading (long, short, hedge, liquidity, futures,
cover, etc) are very useful for modeling things in other walks of life. So,
trading-savvy HNers: Are there any books, websites, or habits that you'd
highly recommend to help a newbie become familiar with basic trading concepts?

~~~
bradleyjg
Pick up a few books like Liar's Poker, When Genius Failed, and Barbarians at
the Gate. That'll give you an engaging intro. Then you can start reading sites
like FT, seekingalpha, Bloomberg, etc.

A few pieces of advice: under no circumstances do you want to get caught in
the weeds of technical analysis, similarly stay away from the gold bugs, and
finally learning is good, but don't jump in unless you are prepared to lose
your shirt.

~~~
javert
_under no circumstances do you want to get caught in the weeds of technical
analysis_

Why is that? (I ask as someone who is genuinely curious and has no prejudice,
not as someone who disagrees with you.)

 _similarly stay away from the gold bugs_

What do you mean? Do you mean, "Don't buy gold," or do you mean something more
than that? And, why? (Similar caveat to before, modulo that it looks obvious
to me that gold is a much safer store of value than almost anything else and
probably even a good investment.)

~~~
mdda
Quick answers :

Technical analysis can give you a false sense of 'knowledge' - when you may
only be picking up patterns in randomness. But it's very seductive in its
certitude.

Gold : If the 'store of value' argument is obvious to you, it's also obvious
to a lot of other people. The price of gold tends to balance out the two camps
: Anyone who sells you gold believes (naturally) that the price is higher than
can be justified (vs. other assets). Gold can certainly go up and down from
here. People also used to believe that houses were a fantastic store of value
('everyone has to live somewhere') - that was only 6 years ago.

The typical trader's wisdom is that if a taxi driver (or some other version of
'the man in the street') offers an opinion about a 'sure thing' - run in the
opposite direction. Currently, taxi drivers love gold. A few years ago, they
had friends flipping condos. Before that it was internet stocks, etc...

~~~
javert
Your answer on gold has definitely made me think.

 _If the 'store of value' argument is obvious to you, it's also obvious to a
lot of other people._

I don't know, I mean, there's lots of smart people who think gold bugs are
just nutty libertarian types, and then there are other smart people who aren't
particularly bullish on gold (such as yourself).

But it seems kind of backwards to just "do the opposite of what everyone
thinks is a sure thing" (as you said) or "do the same and jump on the
bandwagon". Ultimately, in many cases, there will be economic fundamentals
(and not just other people's sentiments) that will drive the value of things
over time.

Which leads me to a more specific question: _What_ kind of event would cause a
major "correction" that would drive the gold price down (either over time, but
a significant downward trend, or suddenly, like a bubble popping)? I can't
really think of one. Can you?

I mean, one would be if everybody "sentimentally" just decided gold was in a
huge bubble, but that seems quite unlikely without an underlying factual
reason. Another would be if there were lots of much better investment
opportunities, that would drive wealth stored in gold into factors of
production... e.g. a very major, capital-intensive global economic boom.
Right? Which is something I would be willing to bet against, at least over the
course of the next decade.

~~~
saraid216
> I don't know, I mean, there's lots of smart people who think gold bugs are
> just nutty libertarian types, and then there are other smart people who
> aren't particularly bullish on gold (such as yourself).

1) It doesn't depend on how smart the person is. It only depends on whether or
not they believe it.

2) It doesn't have to be everyone. It just has to be enough people.

> Which leads me to a more specific question: What kind of event would cause a
> major "correction" that would drive the gold price down (either over time,
> but a significant downward trend, or suddenly, like a bubble popping)? I
> can't really think of one. Can you?

This actually makes me wonder what it would take to synthetically manufacture
gold. A glance at Wikipedia says that it's not feasible (possible only in
"unmoderated reactors", and I don't know what that means), but we seem close
enough that if we wanted to, we could probably do it.

I will be thoroughly entertained if Iran actually decides not only create a
honest-to-God nuclear reactor, but uses it to synthesize gold and flood the
market. It'll never happen, but it would be hilarious.

~~~
crntaylor
We can already create synthetic diamonds [0] and there is no market for them,
at least not as gemstones. People seem to want 'the real thing'.

[0] <http://en.wikipedia.org/wiki/Synthetic_diamond>

~~~
leonsp
It's possible to distinguish natural diamonds from synthetic diamonds because
diamonds can't be melted down and recast, so the impurities and flaws of
natural diamonds set them apart.

Gold, on the other hand, is routinely melted down and recast.

------
kjackson2012
My parents bought their house 25 years ago 250k and sold it for 1.5m. Now they
are renting a 2 br apt for 1500/month. Their housing cost will be roughly
25k/yr and they are millionaires. The idea that the article talks about how
you can't be long the housing market is just dumb. His analogy doesn't work
and to say that you can't benefit from house prices going up is dumb.

~~~
kelnos
If your parents took out a loan when they bought the original house, you're
likely neglecting the cost of interest. If not, that's fine too.

So they "made" $1.25MM at the sale of their house. That's a taxable capital
gain. The rules for that can be complicated, but let's just say 15% to keep it
simple. So that drops the gain about $188k down to $1.06MM.

Let's say they live for the rest of their lives in the 2BR apartment (I have
no idea how old your parents are, but lets just say that's another 30 years).
So you say your parents' housing costs will be $25k per year. Let's say that
goes up 2% per year. In a rent-controlled area it might be a little lower than
that, and otherwise it might be a bit higher. Over those 30 years, your
parents' housing costs will be $970k. So now your $1.06MM is down to about
$90k.

So, effectively, your parents have "made" $90k on their $250k home. That's
36%, or about 1.5% per year. Not great, but better than most savings accounts.
Er, wait. Inflation. Wolfram Alpha says that 250k 1987 dollars is worth just
over $500k today. So under this model, your parents just "lost" $410k.

Not to mention that your parents are now living in a 2BR apartment instead of
a presumably-larger house. And maybe that's fine: you can say that your
parents' innate housing short got smaller because they've decided that they
don't need such a large house anymore, and something smaller and not free-
standing will be fine for them. But that's basically like saying you bought a
case of beer, then decided you didn't need that much, sold it, and bought a
half-case of beer to replace it. Sure, you now have a half case of beer worth
of money that you didn't have before, but you can't say you "made money"
selling the beer.

Now, I'm sure I left out some costs (housing upkeep, property taxes, etc.),
and didn't get the capital gains tax quite right, but I hope you see my point
here. It may make financial sense to sell your house and downsize, but this in
no way means that a home purchase was an "investment".

~~~
blrgeek
Presumably, they'd 'invest' that $1M @ 2.5% to get 25K/yr, nicely paying off
their rent, and keeping the capital in place.

And if they invest it at 2.5% + inflation, they'd never run out their capital
either.

So your conclusion is incorrect.

The way I see it, land (+ house) provides inherent value - ala equity in a
stock, and unlike gold or cash. So buying a house, is an investment, since
it'll presumably last beyond your lifetime, and continue to deliver value.

~~~
kelnos
Good point, I hadn't thought of that.

Still, though, depending on a lot of factors, his parents may or may not make
out net positive in the end.

Thinking about it a bit more, though, I think I'm harping on the wrong thing
here.

Whether or not you come out ahead has nothing to do with whether home
ownership is an asset or a hedge. You can certainly come out ahead with a
hedge: that is, the instrument that you use as a hedge can turn out to be a
source of income in the end. That's part of the reason that it's there, to
provide a possible gain to offset a possible loss. But that doesn't make it an
"investment" after the fact. It's still a hedge.

------
dxbydt
Wtf?! Yes you are short housing...then u buy one...prices go up... you sell
the damn thing...at which point you become short again...but with that extra
money you can cover your short and come out ahead in a _different_ market. It
isn't like gold in that the prices are fairly constant across markets. If my
house in the bay area goes up 30% i sell that and relocate to illinois you can
bet i will cover the short and come out ahead since home prices in illinois
lag ca by a good 150-200k.

~~~
moocow01
"If my house in the bay area goes up 30% i sell that and relocate to illinois
you can bet i will cover the short and come out ahead since home prices in
illinois lag ca by a good 150-200k"

You need to factor in interest paid on your bay area loan to get the full
picture. Just because your house value goes up by a certain margin does not
come close to meaning you have profited by that much. This is especially
important to understand in areas with large home prices in that the cost of
holding the asset (interest) is very high especially early into the loan.

~~~
pbreit
Actually, you have profited much more. If you put 25% down and your home
appreciates by 25% you have doubled your money (net of interest and other
costs). Also, newsflash: interest rates are very low these days.

~~~
moocow01
But that last portion "(net of interest and other costs)" is my argument.
Interest, property taxes, capital gains taxes, real estate agent fees are all
apart of the cost of owning and selling the asset and it usually adds up to
quite a bit. Within the first 5 years even with a 3.5% loan you pay around 20%
of your mortgage balance just in interest.

------
tomasien
This is true, you can't sell your house and then NOT have shelter. What older
people can do is sell their house and then move into an apartment and gain
financially from this transaction, assuming they don't live for many many more
years.

However, if they do they "lose" on the transaction: and this proves the
"covering a short" nature of the transaction.

Wonderful piece.

------
brandall10
"If house prices rise, the value of your house (the hedge) increases but so
does the cost of shelter."

What about the ability to rent? As demand for purchasing housing goes up,
demand for renting typically goes down (ie. either levels off or regresses).
Sure over time both go up, but at a particular slice of time, usually on a
cost of living basis one is advantageous over the other. And while you're
renting at a cheaper cost than it would be to essentially rent money (let's
not kid ourselves, you don't _own_ a house if you have a mortgage), you have
liquidity to place in other investment vehicles.

Small observation... maybe there's something to it, maybe not, but it seems
I'm 2/2 on calling when market swings happen here in downtown San Diego over
the past 10 years. Take a look at the delta in rental prices in properties in
various classes and compare verses actual selling prices. Just like a P/E for
a company, if you can't at least turn a profit on owning a piece of property
as a rental, it is likely overpriced. As much as people love to talk about
various market factors much of this is emotionally driven.

For instance, last year I observed an entry level condo complex in a marginal
area rent 1 beds in the $1800-1900 range. The latest comps for that building
were $150k for like properties. About 5 blocks away 1 beds in a luxury high-
rise were renting in the $2200-2300 area. Comps? High $300k. At the height of
the market comps for the luxury high-rise were in the mid $500k area and the
marginal property were in the upper $300k area. Back when that was happening,
the luxury high-rise unit was renting just shy of $2k. The marginal unit?
About $1400. I took another 4-5 other buildings in the area of varying quality
and this trend was intact. To be fair this is a small, insular market and
these swings are largely driven by speculation from the bubble-tastic
situation many overheated markets found themselves in (ie. people owning and
flipping multiple properties found the bottom of the market being rented
cheaply).

~~~
drewcrawford
> As demand for purchasing housing goes up, demand for renting typically goes
> down (ie. either levels off or regresses)

While it's true that we had a rather large anomaly 2004-2009 (a.k.a. the
housing bubble), and that there are tiny boom/bust cycles in which it is
possible to get a little leverage to cover switching costs, prices and rents
seem to be mostly linearly correlated [1]. This means that as prices go up,
rent goes up.

In order for prices to be divorced from rents, you have to hypothesize some
weird market externality, like a major recession, or crazy incentives for
mortgages, city suddenly becomes a tourist destination, etc.

[1]
[http://static3.businessinsider.com/image/4fb9fad169beddbc290...](http://static3.businessinsider.com/image/4fb9fad169beddbc29000015/image.jpg)

~~~
brandall10
It would behoove you to read beyond the sentence you quoted.

"In order for prices to be divorced from rents, you have to hypothesize some
weird market externality,"

There are _always_ externalities at play with an asset, and many times they
are irrational. Sometimes people just want a place to put their money because
a particular asset class appears to be more performant at a given time than
the alternatives.

[1] Isn't applicable as this is a regional phenomena. Looking at this at a
national or global level absorbs localized hysteris.

~~~
drewcrawford
While it's true that there are regional price/rent divergence phenomena, the
transactional costs exceed the profits and effectively segment owner-occupied
and renter-occupied housing into noninterchangeable goods. Quoting from a BLS
meta-study [1] who cites an earlier BLS manuscript by the same author
(original paper unavailable):

> Despite this novel divergence finding, the third novel finding is that there
> were evidently no unexploited profit opportunities. The detached-unit rental
> market is surprisingly thick, and detached housing is readily moved between
> owner and renter markets, so the capital specificity issue highlighted by
> Ramey and Shapiro (2001) should not play a big role. However, the large
> costs associated with real estate transactions would have prevented risk-
> neutral investors from earning expected profits by using the transaction
> sequence buy–earn rent on property–sell, and would have prevented risk-
> neutral homeowners from earning expected profits by using the transaction
> sequence sell–rent for one year–repurchase. The large wedges offer a partial
> explanation of the significant divergences: rents and user costs might
> evolve somewhat independently until their divergence becomes large. Another
> way to put this is that the owner-occupied and rental markets are segmented.

[1]
[http://siteresources.worldbank.org/ICPINT/Resources/270056-1...](http://siteresources.worldbank.org/ICPINT/Resources/270056-1255977007108/6483550-1257349667891/6544465-1263333205953/01.10_ICP-
TAG02_Housing-Rents&UserCosts.pdf)

~~~
brandall10
Those transaction costs are going down to the point where they will be a non-
issue. Technology is making it happen. 1%/flat fee brokers were common during
the last cycle as well as all sorts of tools to buy/sell your property. Check
out something called homecoin.com. Additionally, did you know you can become a
licensed broker for less than $1000?

BTW, I am both a landlord and a homeowner, have been since 2003.

I also have known 5 gentlemen/families over the years who have made 8 and 9
figure fortunes solely from real estate. No, it didn't happen over night, it
took several boom/bust cycles and leveraging up. I'm just echoing largely what
I've been told.

I'll take practical experience over studies any day.

------
robryan
What about if you get to 60, sell your house and use the money to rent for the
rest of your life. In that case you might have higher short term costs as well
but to you can stay in short term as you will likely not need a house for long
enough to make long term more economical.

Also housing markets in different places don't move in unison so there is some
room to trade markets and turn a profit.

Not sure any of this effects the point of the article though.

~~~
caf
Yes - you are only naturally short the housing you will need for the rest of
_your_ life, but if you own a house then that represents housing for the rest
of the _asset's_ life.

If the life of the asset is expected to be significantly longer than your
life, then you are indeed slightly long in housing.

~~~
pcwalton
Similar reasoning applies to willing your house to your kids (or whoever else)
-- that's potentially a lot of value you can transfer when you no longer have
housing needs yourself.

------
jameslin101
If you are "naturally" short housing because you need it, can't you could make
the same case for all hard commodities and stocks in companies that produce
all your future consumption needs?

~~~
mbetter
No.

------
paulsutter
This is an extremely long-winded way of saying that rising house prices are
only good for owners who want to move to a smaller house.

The article misses that rising house prices can also be good for a person who
intends to move to a place with cheaper housing.

Net net: rising prices good for near-term retirees and rental property
investors, bad for almost everyone else.

------
bitteralmond
Can someone please translate the trader jargon out of this article?

~~~
mdda
Because everyone needs to live somewhere, if they don't own a house, they are
hurt if house prices (and 'therefore' rents) rise.

To avoid being affected by something external (like house price fluctuations),
it makes sense to own a property (or invest in property-related stocks). But
only enough to cover your needs.

If you buy a too-big house, or several houses, you'll be in the situation of
hoping for house prices rises - meaning that you'll benefit if prices rise -
beyond the additional cost that you'll face in the current property markets.

The surprising point of the article is that it is natural to assume that no
property = no exposure. But that's not true in the case of housing.

~~~
001sky
_The surprising point of the article is that it is natural to assume that no
property = no exposure. But that's not true in the case of housing._

\-- suggests public policy should be to <decrease> housing prices. yest many
government's seek to <increase> or "support" them. we should all ask why??

------
mmphosis
Depending where you live there are alternative shelters. The alternatives are
not for everyone, and they are usually not "easy", but there are advantages
and disadvantages to not owning (a house) and to not renting.

~~~
lsc
example? I mean, assuming one wants to live within society and not as an
"outlaw" wanderer, I'm having a difficult time thinking of how you can avoid
buying or paying for shelter.

~~~
mappu
You could live with your parents, or couchsurf with an understanding friend /
partner. Richard Stallman famously lived out of his MIT office for a long
period of time.

Of course, these lifestyles all have costs, just not necessarily financial
ones.

~~~
joezydeco
So do you plan to continue your genetic lineage? Um, I mean, have kids and
reproduce? If not, cool. You can die alone in your office.

If you _do_ plan to have kids, where are you going to house them? Okay, so
they're going to share the RV with you. Do you plan to home-school them? Do
you have time? Okay, maybe take advantage of the public system then. Whoops,
you need a permanent address for that. I guess you're going private. Hope you
saved up.

~~~
lsc
>You can die alone in your office.

Unless you are RMS, you know, or otherwise really, really difficult to
replace, the boss is unlikely to let you 'establish residence' in your office.
The tax implications alone are complex. insurance, housing law, zoning law,
man, it's a pain in the ass. I mean, I always was /that guy/ and I was a
little annoyed the boss wouldn't let me live in the office, but now that I am
the boss? I see why. It's cheaper to buy a cheap apartment than to deal with
the bullshit.

that said, if I was single, I'd probably get a nice live-work place and let
the chips fall where they may come audit time, just 'cause I think it'd be
_really cool_ and because some of those issues (like the 'establishing a
residence' - you really don't want to have to call the sheriff and go through
evictions when you fire the guy.) go away if the owner is the employee, too.
but as I'm not single, yeah, having that separation of space (and having "my
space") is pretty nice, too.

------
hans
this can't be good, that hedge funds are currently buying up housing in a huge
way, moving into rentals especially, going long housing, expect a rent grip
like no other in the next 3-5yrs :

[http://www.marketplace.org/topics/economy/hedge-funds-
crowd-...](http://www.marketplace.org/topics/economy/hedge-funds-crowd-first-
time-buyers-out-housing-market)

[http://www.nytimes.com/2012/12/09/business/financiers-bet-
on...](http://www.nytimes.com/2012/12/09/business/financiers-bet-on-rental-
housing.html?pagewanted=all&_r=0)

------
jessepollak
Question, what if you own a permanent shelter and then buy/rent/lease another
(or multiple) shelters as an investment. Would you still consider that
shorting the housing market?

~~~
ukoki
This would make you 'long' in the housing market, but I fail to understand why
people are so eager to buy individual properties as an investment. Individual
properties are incredibly risky because the price is tied to so many local
factors, what if the area goes bad? What if a bad tenant destroys it or
doesn't pay rent for a few months? - for those who believe investing in
property is a 'sure thing', why not simply invest in real-estate investment
trusts, spreading the risk to thousands of properties around the country (or
world), and getting a much less volatile return which is more representative
of the 'true' housing market.

~~~
nicholas73
The best and worst reason I can think of for why people are attracted to
investing in properties is leverage. For the typical person it is the only
asset class where banks will lend and allow you to leverage an order of
magnitude above investment. You cannot do that in a REIT. However you are
right it increases risk and also you put in a lot more work. If you can afford
the risk and have time, then great. If not, there are other ways to make
money, as you point out.

~~~
todsul
You can actually gear into a REIT to a similar level. Most REITs have internal
gearing, so applying your own gearing, albeit at lower ratios, will produce a
similar effect.

------
ash
Seems to be overloaded. I had better luck with (Coral) cached version:
[http://thezikomoletter.com.nyud.net/2012/12/10/you-are-
natur...](http://thezikomoletter.com.nyud.net/2012/12/10/you-are-naturally-
short-housing/)

------
polskibus
I found the author's style engaging and simple enough for the broader
audience. I'd like to see more of this, perhaps continuation of the thought
and description of mortgage backed bonds and CDOs ?

~~~
thisone
maybe the PlanetMoney podcast? The episodes they did with This American Life
about the mortgage crisis back in like 2008-2010 were brilliant (imo), and
then they bought their own CDO toxic asset in 2010, I think, and reported on
it.

<http://www.npr.org/blogs/money/> [http://www.thisamericanlife.org/radio-
archives/episode/418/t...](http://www.thisamericanlife.org/radio-
archives/episode/418/toxie)

~~~
zecho
Toxie (the given nickname for the toxic asset they purchased) was a long-
running recurrence on Planet Money. Here is the archive:
[http://www.npr.org/templates/archives/archive.php?thingId=15...](http://www.npr.org/templates/archives/archive.php?thingId=153290839)

------
roel_v
\- Author fails to make the distinction between two aspect of owning a house:
for shelter and as an investment. These are two, although related, distinct
aspects.

\- Author fails to acknowledge that the point of making money an a house
('using it as investment') hinges on not rising prices, but prices that rise
faster than inflation / COL, and/or inflation being above the mortgage rate
the house was financed with. So no you're not 'just covering a short
position', you're covering a short position _and_ going long _at the same
time_ , with the same vehicle. But this is of course where the analogy falls
apart. I posit that his analogy is unhelpful in understanding the role of a
house in personal wealth management.

~~~
nullc
I don't think there is any failure there:

\- You are inherently short the hypothetical minimum shelter requirement home—
this is your future housing obligation.

\- You may also be long a highly correlated actual home asset.

Appreciation of the latter is not beneficial to you when it is matched by the
former. This means, for example, that you should think carefully before
obtaining a HELOC against "appreciation" because you can have paper
appreciation while staying equal or actually becoming worse off relative to
your future obligations.

------
hayksaakian
It'd be great if my parents understood this concept. They always seem excited
to sell their house when prices go up, and plan on buying a new one in a
couple years after buying the first.

------
stanfordkid
what about renting vs. owning? Can't you arbitrage between the two.
[http://www.nytimes.com/2008/05/28/business/28leonhardt.html?...](http://www.nytimes.com/2008/05/28/business/28leonhardt.html?pagewanted=all&_r=0)

~~~
josephlord
Absolutely. But you should realise that while you are renting you are 'short'
on housing and you will either need to keep buying housing monthly (a.k.a.
renting) for the rest of your life or buy a house later (hopefully cheaper or
at least more affordable to you than you could now). There is nothing wrong
with being short on the housing market you may have no alternative or you may
have much better places to invest your assets or you may just think house
prices will fall.

No option is risk free but the lowest risk approach is to match your lifetime
needs to your assets so that you don't care what happens to house prices.

