Short Countrywide?

Posted by: Peter Coy on July 27, 2005

Let’s say you fear housing prices are bound to fall but you still want to own. Is there any other way to protect yourself? Here’s one unorthodox idea I got in an email today from David Brady, an investment adviser in Chicago (Brady Investment Counsel LLC):

…the true financial geek looking to buy and hedge from a potential decline in prices may want buy the house today and short Countrywide Financial (CCR-$36), a mortgage lending leader. Or better yet, short a publicly traded bank with operating profits very concentrated in the … mortgage lending and residential real estate markets [where you live]. If the residential real estate market continues to run, your RE investment works great but you lose it all on your short. If the RE market gets cracked, the short works and you lose on the RE.

Interesting, Mr. Brady, even though I see a couple of problems. The biggest one is that shorting stocks can be kind of expensive. It wouldn’t be reasonable to keep a short position for years, which is how long it might take for a real estate bubble to burst. It’s also not exactly a solution for everyone, since on a national basis the potential losses from real estate dwarf the potential gains from shorting mortgage lenders.

Reader Comments

james david

December 24, 2005 10:45 AM

Countrywide Insurance Services is fully established for being the premier provider of insurance choices and solutions to the customers

David Brady

August 20, 2007 9:29 AM

August, 20, 2007. It is time to cover our short CFC recommendation. The shares are down close to 40% from the July 27, 2005 date of this story. The housing market appears to be bottoming; although, we project the recovery period to be long. The idea was given as a way to hedge the then impending decline in the housng prices. While there may still be other reasons to short CFC, we feel it has worked well to cover the drop in real estate prices that has occured over the past two years and for that reason, it is time for us to go.

Dave Brady
President
Brady Investment Counsel LLC

Eric

February 13, 2008 1:59 PM

Mr. Brady,
nice call. Too bad you didn't hold out for a few more months.

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About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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