Contracts/Instruments for Shorting Real Estate?
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Most of the Reits pay big fat dividends...so if you short them you have to pay those dividends if you stay short them. (something to keep in mind not only becuase you have to pay them but because those big yields help provide support when the stocks come in).
Real estate is hard to figure and it seems lke it has frustrated many money managers prehaps because there are definitely characteristcs of a bubble in many markets but in other markets that does not seem to be the case.
While the nasdaq ran up and all the dot com's issued zillions of shares of sub marginal stock and everything just imploded after the mania ended....land and housing/office supply is very constrained in many areas today especially on the residential front. More and more if you want to build a new house you have to pay the city, county, etc.....more and more of those impact fees and it is so hard to get land rezoned these days. Having that problem now myself.
So what looks like a bubble in some areas is not as inflated as one would think when you look at the underlying circumstances the largest I think being the fact that there is not a lot of supply comming on line and demand has just ramped with rates so low.
The homebuilders likewise are tough to short becuase the valuations never got really stretched. If a lot of these home builders get slammed it seems like many of them have the cash on hand to buy their stock back and provide support.
Having said all that I think the best available broad hedge on real estate would be to sell calls or purchase puts on the GSE's and the Insurers's. Or call call credit spreads on some of the home builders as it seems like the upside is capped more than they are likely to get smacked really hard. Insider selling has definitely picked up dramatically.
Seems to me like there could be a lot of defaults next year if this Economy doesn't turn soon though. Put me in the camp with those that think the GSE's are a derivatives accident waiting to happen.
Ton of office space available in Denver for sure. Greater than 20% vacancy's in some buildings from what I hear.
some of these concepts have been mentioned by others previously, but are worth repeating. The REITS do have a signifigant dividend that you have to pay if you short. Also, when you short, you have to either use or borrow capital for the short.
Puts have time decay. So bottom line, it's worth it to line up your selections for hedging your real estate, BUT you are going to have to carefully monitor your own real estate market very carefully AND monitor the TA of any hedges you employ PLUS the correlation of the hedge to your property and ONLY employ the hedge when it is needed and there is action in your hedge. Otherwise the cost of the hedge will signifigantly eat up, or even outweigh the benefit.
Is it really worth it? Probably yes, but it will be a project to do it right, just think of it as a homeowner's project, like any other maintenance activity.
Puts have time decay. So bottom line, it's worth it to line up your selections for hedging your real estate, BUT you are going to have to carefully monitor your own real estate market very carefully AND monitor the TA of any hedges you employ PLUS the correlation of the hedge to your property and ONLY employ the hedge when it is needed and there is action in your hedge. Otherwise the cost of the hedge will signifigantly eat up, or even outweigh the benefit.
Is it really worth it? Probably yes, but it will be a project to do it right, just think of it as a homeowner's project, like any other maintenance activity.
Avalanche and Swt,
Exactly the factors I am considering...sounds like you have somehow gained access to my trading blotter and monte-carlo simulator. I am currently leaning towards selling call spreads, though still have to decide on strikes, weighting versus asset value, underlying, and timing, though it will likely be in the next several weeks. The structure is the most attractive of those I have considered so far.
Best,
O.
Exactly the factors I am considering...sounds like you have somehow gained access to my trading blotter and monte-carlo simulator. I am currently leaning towards selling call spreads, though still have to decide on strikes, weighting versus asset value, underlying, and timing, though it will likely be in the next several weeks. The structure is the most attractive of those I have considered so far.
Best,
O.