Paulson is betting on housing. Should you?

Once upon a time, John Paulson was such a bear when it came to housing, he was a character in the Goldilocks fable. He shorted subprime mortgages just before they collapsed in 2007, taking in $3.5 billion doing so.

That was six years ago. Since then, Paulson has changed his story to the Three Little Pigs: he'll take those homebuilders if they ever plan on selling shares.

Paulson was right on shorting housing at a time when everyone else got it wrong. Now he's housing's biggest cheerleader. Speaking to the CNBC/Institutional Investor Delivering Alpha conference yesterday, Paulson said:

"I'm not sure if housing prices will increase ten percent every year. But it's likely over the next few years they'll increase by 5% to 7%. So, there's still a lot of upside. It's not too late to get involved."

Paulson thinks there just aren't enough homes these days:

"Housing starts are up 50% from the trough and that's created a lot of excitement. However, the peak was 1.8 million. And we estimate you need about 1.2 million new single family homes a year to meet population growth and replacement demand in the US. So, while were up 50% from the lows, we're still only half of what we believe is the long term trade."

Plus, according to Paulson, there may be some extra benefits to a housing boom:

"The inventory of existing homes has come way down where it's now at a level relative to sales of where it was in the peak of the housing market. It's only about a five-month supply. So, that means in order to meet the demand, you're going to need new home construction. I think that the rate of new home construction will continue to increase and that's going to benefit the overall economy."

Does Paulson have it right this time around? We ask Talking Numbers contributor Enis Taner, Global Macro Editor at, and CNBC contributor Abigail Doolittle, Technical Strategist at The Seaport Group, if Paulson's housing bet is standing on solid foundations. They look at the SPDR S&P Homebuilders ETF, the XHB.

Watch the video above to hear Taner and Doolittle analyze the XHB.

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