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Want to short the Canadian Housing Market?

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  • May 9th, 2013 12:36 am
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Jun 6, 2007
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KINGSTON, Ontario

Want to short the Canadian Housing Market?

Eisman positive on U.S. housing, wary on Canadian housing
25 minutes ago by Thomson Reuters
By Sam Forgione

NEW YORK, May 8 (Reuters) - Steven Eisman, founder and portfolio manager of hedge fund Emrys Partners, L.P., said Wednesday that he is positive on U.S. housing but wary of Canada's housing market.

Speaking at the Sohn Investment Conference in New York, Eisman said he likes housing stocks such as Lennar, Forestar Group, Colony Financial Corp., and Ocwen Financial.

He said he is wary of Canadian mortgage originator Home Capital Group. Eisman said the Canadian housing market is troubled and estimated the domestic funding gap for the six big Canadian banks at roughly $427 billion.
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Feb 15, 2008
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I own Canadian banks. I am, by definition, short Canadian housing. After all, Canadian banks hold government-insured debt against housing. Much like stock shorts hold government debt instead of stocks (ie: they've borrowed stocks, sold them, and have invested the proceeds into government debt).

This so-called 'domestic funding gap' will come straight out of the CMHC's proverbial hide.
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Mar 19, 2010
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dgodsell wrote: Eisman said the Canadian housing market is troubled and estimated the domestic funding gap for the six big Canadian banks at roughly $427 billion.
He is not the only one making this call. Haven't the Americans heard of CMHC?

Every mortgage held by a Canadian Bank is guaranteed by CMHC.
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angelok wrote: He is not the only one making this call. Haven't the Americans heard of CMHC?

Every mortgage held by a Canadian Bank is guaranteed by CMHC.
That's not strictly true (only a portion of the Canadian banks' mortgage books are CMHC-insured). However, nearly all 'at-risk' loans are CMHC-insured. Obviously the banks won't bother obtaining insurance gains 20% LTV written to dentists, for example.

However, to imply that the banks need $427B of additional "funding", really is rather ignorant. They can run the higher leverage than US banks because a) they do not engage in maturity transformation or have a duration gap, and b) the mortgage loans are largely guaranteed, and c) 40% of their mortgage portfolios can be liquidated basically on an overnight basis.

$427B sounds about right for what the CMHC will probably have to cough up, given that they've insured $900B worth of subprime debt.
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Anyone know of an actual, direct way to short residential real estate? Are there any condo REITs to short?
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brunes wrote: Anyone know of an actual, direct way to short residential real estate? Are there any condo REITs to short?

Boardwalk REIT (TSX: BEI.UN)
CAP REIT (CAR.UN) (TSX: CAR.UN)
InterRent REIT (IIP.UN) (TSX: IIP.UN)
Milestone Apartments REIT (MST.UN) (TSX: MST.UN)
Morguard North American Residential (MRG.UN) (TSX: MRG.UN)
Pure Multi-Family REIT LP (RUF'U) (TSX: RUF.UN) <----- US housing
True North Apartment REIT (TN.UN) (TSX: TN.UN)

Be warned that you are on the hook for the dividend each month if you short it.
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brunes wrote: Anyone know of an actual, direct way to short residential real estate? Are there any condo REITs to short?
Sell your house.
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Mar 19, 2010
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brunes wrote: Anyone know of an actual, direct way to short residential real estate? Are there any condo REITs to short?
Why would you want to short Rental properties?

Whether housing crashes or not, people will continue to pay their rent. If anything, there will be more demand for rent when somebody sells a house that they can't afford.
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angelok wrote: Why would you want to short Rental properties?

Whether housing crashes or not, people will continue to pay their rent. If anything, there will be more demand for rent when somebody sells a house that they can't afford.
Just playing devils advocate here, once the construction people have realized there's zero profit to be made in building SFH's, they'll aggressively build multi-family. Essentially damaging the REITs' collateral.

I agree that REITs are trading at nosebleed valuations, but I wouldn't hold them out as being perfectly correlated with residential RE. There could be quite a lag between REITs going down and SFH's going down, for instance.
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