A trade once nicknamed the “widow maker” by analysts at JP Morgan seems to be back in vogue with hedge funds this year.

According to research from Ihor Dusaniwsky, Head of Research, S3 Partners, an independent Financial analytics firm, hedge funds’ short interest in Australian banks ticked higher last month as managers continued to speculate that Australia’s housing boom is coming to an end.

Four of the top seven most shorted stocks in Australia last week were banking stocks. Short interest in Commonwealth Bank of Australia, National Australia Bank, Australia & New Zealand Banking and Westpac Banking Corp rose by a total of $356.3 million, or 9.1%, for the week.

This hot trade among Hedge Funds has been around for some time, but so far bank stocks have proven short sellers wrong time and again.  A Morgan Stanley prime brokerage report from March 2016 stated the following regarding Australian funds: Hedge Funds continue to be the most net short they have been since 2010.

But it is not just hedge fund managers from Australia targeting the country’s banking sector.

Marc Chatin of Parus Fund pitched a short of Australian banks at last year’s Sohn London conference, following other funds such as Lakewood Capital which has gained a reputation for its aggressive short exposure since its founding in 2007.

Lakewood Capital opined in its Q4 letter:

With the turn in the Australian housing market likely soon upon us, we think investors will regret paying a multiple of 2.5x book value for banks that may be vulnerable to significant write-downs. Current loan loss provisions booked through the income statement at Westpac and Commonwealth would need to more than double simply to be comparable to the current impairment expenses at large U.S. banks today, and that excludes the one-time boost needed to match their overall stock of allowances. Provisions would likely be even higher than the current U.S. run-rate if the Australian housing market experiences a serious downturn. Utilizing a conservative scenario where provisions simply rise to the current U.S. run-rate, earnings would fall by 15% for these banks. With increased losses, lower earnings and thin capital levels, we believe these stocks could soon trade more like their global peers. At 10x this revised earnings level, Westpac and Commonwealth would be worth 40% less than the current share prices but would still trade at 1.5x book value, well above most other global banks. If the Australian housing market runs into more serious problems as we suspect could be the case, further downside in these stocks would be likely.

The short Australian banks’ thesis is based on the country’s bloated housing market. According to Chatin’s Sohn presentation, four of Australia’s largest banks control 80% of the market, and over the past few years, these banks have reaped the rewards from Australia’s booming property market. Stocks are up over 200% and now trade at a P/E of 12 to 14 times and a P/B of 1.4 to 2.2 times.

Rising Australian real estate prices are entirely to blame this growth. Property prices have spiked since the financial crisis and now trade at a price to income ratio of 5.6 times for the whole country and 6.4 times for metropolitan areas. However, high prices haven’t deterred buyers, and mortgage borrowing has ballooned pushing the average debt ratio to household income figure above 200%. As in any free market, builders have responded by increasing supply. Housing starts are up 200% in the last two years, and house prices, as well as transaction volumes, are starting to fall.

John Hempton and John Tepper are also Australian banking bears. A recent article in The Australian notes

Earlier this year, Sydney-based asset manager John Hempton teamed up with Jonathan Tepper, who runs US-based hedge fund consultancy firm Variant Perception, for an undercover investigation of Australia’s property market. Posing as a gay couple, they drove around Sydney, from glitzy beachside suburbs to the shabby city fringes, to probe potentially risky lending practices. What they found was considerably worse than what they had expected.

“We witnessed a mania in all its crazy excess,” Mr Tepper told clients. “Australia now has one of the biggest housing bubbles in history.” Among the trades he recommended in anticipation of a major property market downturn: shorting Australian banks.

These metrics all appear appealing for a short, but there is a reason why JP Morgan has labeled short Aussie banks as a “widow maker” trade. Specifically, Sujit Dey, the executive director of the bank’s hedge fund sales desk in Sydney speculated in a research note to clients at the beginning of last year that home prices were more likely to fall 5% to 10% rather than the 50% decline being predicted by some hedge funds. The only way a 50% decline in home prices would materialize is if there was a sudden increase in mortgage rates and unemployment according to Dey.

So far, bank stocks are showing no signs of a weakening market. Shares in Commonwealth Bank of Australia, National Australia Bank, Australia & New Zealand Banking and Westpac Banking Corp are up an average of 4.2% for the year and 2.6% in March alone...