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I think that is exactly the opposite. Most people are long on the housing market.

They have borrowed cash to purchase an asset they think will maintain or go up.

Renting would be the short position.

https://www.investopedia.com/ask/answers/100314/whats-differ...



There are huge transaction costs to buying and selling a home, renting could also be seen as a way to avoid those costs if you aren’t going to stay somewhere. But I rented for cheap in Beijing when housing to buy costs were super high, who wouldn’t rent a $1 million apartment for < $1000/month, buying in that market would have been dumb even without red tape to buy something.


Sure, I don't think many would disagree. Especially in places with large agent commissions and capital gains taxes


If a buy a house today for $1m and it goes up 50%, great I've made $500k.

But if I really want to buy a $2m house eventually, that house has (probably) also gone up 50% and so it now costs $3m.

So when I bought the first home, the second home was $1m more expensive, after appreciation it is now $1.5m more expensive.

I said "implicitly" for a reason.

(I am well aware of what long and short means, my background is in trading)


I still dont understand the nuance of how this appreciation relates to shorting, implicitly or otherwise.

Does it matter what you think your cash investment would meet or beat the real-estate appreciation?


Let's say you are an airline. You are selling tickets for the next year. Jet fuel is a major input cost, largely driven by the price of crude oil. If you sell a ticket today for 6 months from now, you are implicitly short the oil market.

You haven't actually shorted the market, but if prices increase over the next 6 months, you may end up losing money on the tickets you sold. This is why you see airlines hedging, because they are implicitly short.

The same holds true for housing for most people as I explained above. People rarely downsize their homes. Their forward consumption of housing is almost always greater than their current exposure to the housing market. This leaves them implicitly net short.


Thanks for explaining. your are talking about exposure to cost increases relative to your intended purpose.

I hold that still depends on what your alternative investment opportunities are. If you buy the $1M house when you actually want the $2M house, you are still locking in 50% of the cost. Thats a good thing if the alternative investments perform poorly, and a bad thing if the alternatives are better.


Yep, you are indeed locking in part of the cost, but you are still implicitly net short and thus better off if prices fall vs rise.




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