Caledonia touts Zillow opportunity amid high US mortgage rates

afr.com:

Will Vicars’ hedge fund Caledonia has told its well-heeled investors they have a historic opportunity to hold and top up on shares in one of its most controversial investments, North American real estate platform Zillow, despite deep turmoil in the property market.

Mortgage rates in the United States have climbed to their highest level in more than 20 years, with fewer homes on the market. That has left some home owners unable to move house because they cannot afford to switch from their existing loans to new, higher mortgages.

Caledonia joint chief investment officer Will Vicars. The fund remains confident in Zillow.  Edwina Pickles

But Mike Messara of Caledonia, known for taking long-term conviction bets on small stocks, told the fund’s investors in a presentation last month that the US housing market’s troubles meant there was pent-up demand for house moves, favouring the stock.

Sources on the call said Mr Messara argued the housing cycle was nearing the bottom, and would bounce back by 2025 as people were forced by life events to eventually move.

Zillow is one of Caledonia’s largest positions, and the fund, run by joint chief investment officers Mr Vicars and Mr Messara, has backed the group since at least 2013. The Packer and Fairfax families followed the fund into the stock. Gretel Packer received Zillow shares from James Packer as part of an asset split after the death of their father, Kerry Packer.

Despite Caledonia’s bullish view, Zillow co-founder Spencer Rascoff told The Australian Financial Review the housing market’s troubles were an overhang on the stock, and it could be “significantly” more profitable if it shifted strategy.

Zillow co-founder Spencer Rascoff. Getty

Zillow has acknowledged the impact of the