Are hedge funds planning to crash housing?
Ok, I'll state up front I don't think this is likely but I find it an intriguing conspiracy theory.
Basically, the theory goes like this.
Last time, the hedge funds knew we were in a housing bubble and were betting against housing (read the Big Short), but they didn't know exactly when the bubble would burst, which is always the problem with bubbles.
For the current bubble (assuming there will be one) the hedge funds are not only playing the upside by buying tons of houses (at one point in Atlanta 25% of houses were going to hedge funds or similar big players), they will play the downside (like a violin) as well. After buying a lot of assets and still continuing to buy some assets they are then going to securitize their holdings by selling bonds. Then they are going to start selling some of the holdings keeping control of enough assets so that they will be able to control the timing of the next crash. They will use the funds acquired through selling and securitization to bet against housing.
Unlike the last time they will know when the bubble is going to burst because they will cause it to burst by suddenly putting a large number of houses on the market simultaneously at a steep discount. As any put buyer can tell you knowing when an over priced asset is going to crater is a huge advantage.
Yes, they would lose money (on paper) on the assets they still owned, but they would make much more money shorting the overall housing market.
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@Cal C., I did hear the home prices are due for an adjustment next year though. I heard different theories from different ppl:
- Just the normal market cycle
- ppl who got into a 7-yr variable loan just before the crash is about to get hit by a balloon payment
- the Chinese government is starting to restrict money leaving the country. So there will be less investment money coming in the US market.
- And now the hedge fund conspiracy
Whatever it is. I'd make sure I have my cash ready when the home prices start to fall.