A big short goes long on housing

     Before the collapse of the housing market amid the sub-prime lending fiasco, the name Paulson was associated with U.S. Treasury Secretary Henry (Hank) Paulson.  But for anyone who has even casually followed the markets since or had the great good fortune to read Michael Lewis’ excellent and absorbing book, The Big Short, the Paulson making headlines is a John come lately.  John Paulson and his hedge fund made nearly $15 billion betting against the housing market.

        For those who have been waiting to time the housing market rebound, Paulson issued a prediction about prices today.  According to a report on the CNBC network, the hedge fund manager predicted a V-shaped recovery in housing that could see prices increase 3% to 5% this year and 8% to 12% next year.

        To those who own a primary home and will sell it to buy another home, the bold prediction, if true, doesn’t make a whole lot of difference,

at least in the near term.  Your house in, say, Milwaukee, will appreciate but so will that golf community home in Savannah you have your eye on.  In the longer term, though, if Paulson is right, count on prices rising faster in those places to which baby boomers are moving, based on the simple theory of supply and demand.  However, for those contemplating staying put in their primary homes but waiting for prices to drop further on their dream vacation place, Paulson’s prediction could be a call to action, if he is right.

        Of course, like other celebrities in our 15-minutes-of-fame culture, Paulson knows that many people will hang on his advice and follow his lead.  He recently formed a new hedge fund that is betting heavily that housing prices will rebound.  He is no doubt hoping his prediction is a self-fulfilling prophecy.