Short sellers were caught out this week when the government's "Your First Home" scheme sent housing-related shares sharply higher.
Seven of the 20 most shorted stocks on the UK market are housebuilders or building materials suppliers, analysis by AJ Bell, the investment platform, shows.
Those seven gained an average 12.2% on Monday 28 September, the day Prime Minister Andy Burnham announced the scheme.
Brick maker Ibstock, the UK's most shorted stock with 16.86% of its shares bet against, jumped 23.5%.
Pipe supplier Genuit rose 15.3%, Taylor Wimpey 14.7%, Crest Nicholson 11% and Vistry 10.7%.
Aggregates group Breedon gained 8.8% and Kingfisher, the B&Q owner, added 1.3%.
How shorting works
Short sellers borrow shares, sell them and aim to buy them back later at a lower price, pocketing the difference.
When a share rises instead, they rush to buy back stock and close their positions, which adds to the buying pressure.
"Highly shorted stocks can sometimes rise sharply following positive news as short sellers rush to close positions, creating additional buying demand," said Dan Coatsworth, head of markets at AJ Bell.
The scheme offers first-time buyers 2.5% deposits backed by 20% equity loans from the government.
Rates still bite
The property sector had become an easy target as high oil prices fuelled inflation fears and expectations of a series of interest rate rises.
Higher rates push up mortgage costs and price many buyers out of the market.
Coatsworth said that problem has not gone away, and short sellers may see the bounce as temporary unless oil falls sharply and rate rise bets are pared back.
"The key question now is whether improved housing demand expectations prove durable enough to overcome concerns about higher borrowing costs," he said.
Beyond housing
Greggs, the bakery chain, is another heavily shorted stock, with 10.18% of its shares bet against.
Short sellers took another hit on 30 September when a positive trading update sparked a fresh rally in the shares.
Outsourcing group Capita and WH Smith both sit in the top five, reflecting scepticism over their recovery prospects.
Capita has faced scrutiny over failures on a civil service pension contract, while WH Smith has suffered accounting problems and a slowdown in North America.
Wizz Air, the budget airline, has also attracted more short interest as higher oil prices push up costs and threaten travel demand.
Who is betting
Recent rule changes have made it harder to identify the short sellers.
The Financial Conduct Authority (FCA), the City regulator, used to name investors holding short positions of 0.5% or more of a company's shares.
It now publishes a single combined figure for each company, without naming the investors behind it.
