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As the U.S. housing sector crashed, a handful of investors made billions of dollars because they had the foresight to short the market.

They were able to cash in because most of the mortgages issued during the U.S. property boom were repackaged and resold to other investors. Owners of the investments were willing to lend them out to be sold short, because they didn't understand the extent of the crisis to come.

Good luck trying that in Canada, where lending has been more conservative and banks tend to hold onto their loans rather than selling them off. But that doesn't mean that there aren't other ways to bet against the housing market.

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Full warning: a full-scale housing correction is unlikely, according to most economists. But rising household debt and declining home affordability have caused some observers to conclude that the sector is vulnerable, at least to a long period of stagnation.

"We have allowed armies of hormonal young couples without money to buy homes," said Garth Turner, a former MP who now makes his living writing books, acting as a financial advisor and giving scary speeches about a coming disaster he likes to call "Houseageddon."

"We had a state-sanctioned policy of inflating real estate through bizarre mortgage rates, the home renovation tax credit, first-time buyer's grant, RRSP home buyer's plan and the tax-free treatment of capital gains on a principal residence. Why would we not expect consequences?"

If you share Mr. Turner's viewpoint - or even if you think that the real estate market is merely entering an era of flat prices - here are three strategies to consider:

Sell your house

If this is indeed the top of the market, the easiest strategy is simply to sell your house and let some other chump suffer the indignity of falling values.

But don't rush to dump your residence until you research the specifics of your local market - even if home prices weaken nationally, some cities may still be fine.

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"You want to look at the fundamentals of the market," said Ross McCredie, president of Sotheby's International Realty Canada. "Are there more buyers than sellers?"

He considers the idea of selling "beyond stupid" because of the transaction costs and taxes involved, not to mention the costs of renting until you feel comfortable with the market again.

Not everyone agrees, of course. The Economist magazine recently concluded that Canadian home prices were 23.9 per cent overvalued, which suggests that delaying a home purchase or even selling might make sense in some cases.

If you don't want to jump out of the housing market entirely, you might want to consider moving to a smaller home with less expensive payments. This reduces your costs and reduces the pain if real estate prices flatten or dip over the years ahead.

"The next 10 years will be about buying a house to live in, not to live off of as an investment," said Phil Soper, chief executive officer of Brookfield Real Estate Services.

Short housing-related stocks

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Another way to bet on falling home prices is to short stocks that would suffer in the event of a real estate decline.

Banks might seem to be candidates. There are about a trillion dollars of outstanding mortgages at Canadian financial institutions, with the Big Five chartered banks holding about $400-billion. If the housing market were to completely melt down, the banks would take a hit.

The problem with this strategy is that banks are very well capitalized and there are no historical precedents to suggest shorting a bank because of bad mortgages would be a good idea. The delinquency rate on mortgages across Canada is about 0.4 per cent - and has been decreasing for the last year. It was last "high" in the early 1990s, when it reached 0.6 per cent.

A better idea might be to look at furniture companies such as Brick Group Income Fund and Leon's Furniture Ltd. or a hardware retailer such as Rona Inc. All of them are closely tied to the housing market, although at the moment nobody is shorting their shares.

Invest in apartments REITs

Investment funds are snapping up apartment buildings as fast as they can, because they believe rents will move higher as unaffordable housing drives more people toward rental accommodation.

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"An awful lot of the fortunes of families and smaller businesses in this country were founded on multi-unit residential buildings," said John O'Bryan, vice-chairman of CB Richard Ellis, adding that the challenge has been finding good buildings to buy.

The easiest option is to invest in publicly traded companies that specialize in multi-family residential properties, such as Boardwalk REIT, Killam Properties or TransGlobe Apartment REIT.

One thing not to do is to consider selling REITs short, even if they are heavily exposed to the housing sector. That's because borrowing the units to short puts you on the hook for the monthly payouts, which are relatively high.

"Bottom line, shorting high-yield securities is never a good idea since the distribution/dividend tends to put a tangible floor under the stock," said Dennis Mitchell, a vice-president with Sentry Investments.

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