How to Short the Housing Market

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As the housing market continues to experience a rate hike-related downturn, interest in shorting housing is soaring. Indeed, it seems investors like Michael Burry — who famously earned hundreds of millions off the 2008 housing crash — have created a sort of suspended vacuum of investors eagerly awaiting the chance to cash in on the next major housing recession. While 2023 may not be the sequel to 2008, there are still opportunities to be had.

So, how can you short the housing market?

The easiest, most straight-forward way to short the housing market is to simply buy inverse housing exchange-traded funds (ETFs). These ETFs offer varying degrees of exposure to standard U.S. housing indices like the Dow Jones and will increase in value as the values of homes in the country fall.

It’s worth pointing out ahead of time that housing is, well, housing. It’s not like the country is adding any new land. That means the value of properties generally tends to increase over time as a function of supply and demand.

As such, most of these funds aren’t meant to be a long-term component of your portfolio. Instead, they are temporary investments for when you believe the housing market is headed downward. Held for too long, many of these highly leveraged inverse real estate ETFs may well head to zero. So, it’s crucial to have a clear plan in mind for when and how long you plan on holding a fund.

Also notable is the fact that each fund listed rebalances with its benchmark index daily to ensure a constant leverage ratio. This is basically a safeguard to reduce volatility and ensure each ETF operates according to its thesis.

Without further ado, here are three inverse housing ETFs to short the real estate market.

Direxion Daily Real Estate Bear 3X Shares (DRV)

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The Direxion Daily Real Estate Bear 3X Shares (NYSEARCA:DRV) ETF offers -3x leveraged inverse exposure to S&P Global’s Real Estate Select Sector Index. The benchmark index itself consists of some 30 separate securities from 30 companies in the S&P 500. As a result, the index offers large-scale exposure to the entire U.S. real estate market.

The 3x leveraged nature of this fund means that, on a daily basis, you’ll profit 3% for every 1% the benchmark index falls. That makes DRV the riskiest option on this list, but the best if you have a strong read on the market.

ProShares UltraShort Real Estate (SRS)

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Next up, the ProShares UltraShort Real Estate (NYSEARCA:SRS) ETF also offers a leveraged return of the S&P Real Estate Select Sector Index. Essentially, SRS is fundamentally identical to DRV, albeit with one major difference.

What makes the two exchange-traded funds different? Their leverage ratios. SRS is -2x leveraged compared to DRV’s -3x. That makes the ProShares UltraShort Real Estate ETF a slightly safer option if you’re a bit more risk averse.

ProShares Short Real Estate (REK)

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Finally, ProShares Short Real Estate (NYSEARCA:REK) is basically an identical fund to both DRV and SRS, with the distinction being its -1x return. That’s compared to DRV’s -3x leverage ratio and SRS’s -2x.

Seeing as this fund tracks the same underlying index, on the same market sector, not much needs to be said for it — aside from pointing out it’s once again a slightly more conservative option. If you’re not entirely convinced of your projected housing slide, REK may be for you.

On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

With degrees in economics and journalism, Shrey Dua leverages his ample experience in media and reporting to contribute well-informed articles covering everything from financial regulation and the electric vehicle industry to the housing market and monetary policy. Shrey’s articles have featured in the likes of Morning Brew, Real Clear Markets, the Downline Podcast, and more.

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