The housing market is rolling over.
And it will get worse as mortgage rates and house price inflation continue to rise.
Contrary to popular belief, initially this will make little difference to a booming US economy because housing stopped being a major economic driver after the last bubble collapsed.
But ultimately it will matter, big time.
To Play the Housing Debacle, Here’s What to Short
So how can we play the coming housing debacle in the here and now?
I’d look at the home builder ETF ITB as a short sale. It has already taken a 24% beating this year since the end of January. That has broken the long term trendline from the beginning of the recovery in 2011. But it has also taken the price to the bottom of a trend channel from early this year. That should be temporary support.
If the price falls out of this channel, breaking support, the selling should accelerate, resulting in a steepening decline (Note: this just happened today, just before this post was published). This may not be an ideal short entry point. There should be a rally, either from right here at the bottom of this channel or back to the lower channel line after a breakdown (again, that happened just before we went to posting).
A rally back to the 38 area would be a lower risk entry for a short than right at this support line. But I would not want to miss a breakdown by waiting. If the price breaks down first I would take a half position on the breakdown. A rally back to the 35 area would then be a lower risk entry point for adding the rest of the position (This is now the operative condition).
Put options are not actively traded on ITB. Getting good price execution could be a problem, so I am not recommending that strategy. Shorting the ETF is the only viable option for playing the downside in this case.