Housing Gets Bullish: Is Change in the Air?


Billionaire hedge fund manager John Paulson made a big score when he bet $4 billion against the sub-prime housing market back in 2007. Now he is about to make another big splash on the opposite end of the real estate spectrum: buying up land in advance of what he hopes will be a rebound in the housing market.

BankingMyWay has written about Paulson before, but this time, Paulson isn’t poised to pounce on opportunities from the mortgage meltdown, he’s looking to take part in its resurrection.

Case in point: last May, Paulson came out, pom-poms waving, with a big prediction that U.S. housing prices would rise between 3% to 5% in 2010, and 8% to 10% in 2011. At the time, the hedge fund manager told investors and analysts that U.S. home prices were the cheapest they’d been in 50 years, and that real estate was 60% more affordable than it was in 2006, when housing prices peaked.

Paulson based his estimate on the 8% to 10% growth in California home prices in the past year. That growth, he surmised, would spread to the rest of the nation, and get the housing market back on its feet again by the end of 2011.

For the first half of 2010, Paulson was on track — but barely.

According to the National Association of Realtors, the median price of a single family home in the U.S. rose by 1.5% in the second quarter of 2010 (to $176,000). But Paulson still has a way to go before reaching even the 3% level he predicted last May, and at a time when the term ‘double-dip recession” is on many Americans’ lips.

At least Paulson is putting his money where his mouth is. His $31 billion Paulson & Co. hedge fund made a $42 million bid to purchase the assets of Engle Homes, an Arizona-based land development company. Paulson has also reportedly made overtures for parts of Engle’s parent company, Hollywood, Fla.-based Technical Olympic Co. The company recently filed for bankruptcy and is in the process of having its assets liquidated.

The website Business Real Estate Weekly of Arizona says Paulson is “the likely winner” of the bidding auction for Engle Homes, giving him a small, but eye-opening stepping stone to Arizona’s wide-open land market.

Paulson knew what he was doing in 2007, and it looks like he knows it now. The bids come at a time when real estate developers are starving for cash, and cash is one commodity he has in spades.

In 2007, Paulson bet on the sub-prime real estate market hitting the bottom. Now he’s on track to profit as the real estate market to make it back toward the top.

Still that day could be a long time coming. A very long time, indeed.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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