I'd like to hedge against my neighborhood home value. I'm not terribly concerned if the overall housing market fluctuates, since if I move and sell my home for less, I can buy a new home for less. I'm more concerned about evening out local fluctuations.

Is there such a hedge?

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    @ChrisInEdmonton I briefly considered highlighting the fact that this is not the same question as that one, but figured it really should be self evident to the careful reader. Thank you for being the straight man and for pointing out the difference. Commented Apr 23, 2013 at 18:58
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    Glen - the Home Equity Insurance that Shiller proposed never really took off. In theory, you'd be able to buy or sell an index based on a state's home price level. You are seeking even better granularity, changes in your neighborhood. Sorry, that's not going to happen. The Shiller proposal is interesting but even that may never happen. Commented Apr 23, 2013 at 19:42
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    Basically you're looking for someone to commit to buy your house above the market price. Now why would anyone do that?
    – littleadv
    Commented Apr 24, 2013 at 3:49
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    @littleadv Re: "why would anyone do that?" ... perhaps for the same reason people take on an obligation when they write stock options: for a premium. The issue here is there's no exchange, no market, no standard contract or clearing. But, the concept to me looks like an option of sorts. Commented Apr 24, 2013 at 12:39
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    @littleadv - the proposed instrument is a derivative. Presumably, there's a price for everything. You have a $100K house? Someone will accept your $2000 to guarantee that in a year it won't be worth less than $90K. Not really. The market is too regional, and the derivative market demand may not exist, but in theory, it can be discussed and fleshed out. Commented Apr 24, 2013 at 14:37

1 Answer 1


Any nonrecourse loan is in some sense a hedge against the collateral decreasing in value. "Nonrecourse" means that if you default, they can't take anything other than the collateral. For instance, if you have a $500k house with a $400k nonrecourse mortgage, and the price of the house drops $150k, you're out the first $100k, but you can walk away from the mortgage, let the bank foreclose on the house, and avoid the other $50k of loss.

Mortgages are often technically recourse loans, so in this situation the bank could still sue you for the other $50k, but given how much of a hassle that is, you have significant bargaining power to get them to negotiate a smaller settlement (although such a reduction in debt is treated as taxable income by the IRS).

You should check whether your mortgage is recourse or nonrecourse, and if it's recourse, you could talk to some banks about whether they'd be willing to give you a nonrecoure loan. Be prepared to spend more on interest, though.

There are financial instruments that hedge against a basket of real estate assets, for instance credit default swaps. However, the baskets of real estate assets are generally mortgages rather than the houses themselves and they aren't necessarily geographically specific. The credit default swaps are designed for large institutional investors, not individual homeowners, and the whole housing bubble mess has given them a bit of a bad name.

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