Can I hedge against a drop in my home's value?

Factual Questions
1

Let’s say I own a house in a neighborhood where housing prices are ridiculously high and I expect them to crash at any second. Of course the logical thing to do is to sell the house and take the cash while I can.

But what if I also love my house, my neighborhood, etc.?

Is there any investment product where I can hedge my risk? Some way that I can bet that real estate prices are going down so I can stay in my home and come out of this OK either way?

2

I’d just like to note that it’s wholly appropriate that a Doper named Plan B is posting about this. Nothing else to add.

3

I don’t know where you’re located, but in the U.K., where I live, it is indeed possible to bet that real estate prices will fall by going to one of the bookmakers who offer up and down bets (equivalent to long and short positions) on indexes of house prices. Is it possible that something similar is available where you are, either domestically or offshore and accessible by phone or Internet?

Note: Any type of leveraged speculation on financial markets is extremely risky.

4

Here’s one fairly simple strategy. 1. Refinance your mortgage upto a fairly high limit. (Remember though, you want to avoid PMI.) Take the money you cash out and Be Very Careful With It in investing. Do not spend it. You will need that money back when you sell your house if Something Bad happens and you are forced to sell when prices are low. Note that not all interest on your new mortgage will be tax deductible, depending on the loan amount and how much you paid for your house+improvements.

  1. ??? Here’s the tricky part: What to do with the investment money. Has to be very safe, has to be accessible if Something Bad happens, has to have a rate of return greater than the interest you’re paying (taking into account taxes etc.). In my world, that’s a fairly impossible set of requirements.

If you want to stick to just real estate and are indeed psychic about prices, then hold onto the dough, wait until the crash, buy up your neighbors’ houses at foreclosure. (Prices in true bubbles usually undershoot after the bubble bursts.) Rent the houses out until the market recovers. 3. Profit.

All in all, I see a lot risk and low, if any, rate of return for the short term.

5

Consider that if the market in your neighborhood crashes, it’s likely you won’t love your neighborhood or house for more than a couple of years. Reduced values mean increased quantities of undesireable and crime-prone neigbors, increased frequency of people that don’t maintain their properties, and increased frequency of 1979, tireless Cameros sitting on cinder blocks. All this, of course, contributes to the decline in the property values, perpetuating a situation like Detroit.