If you’ve seen the 2015 movie “The Big Short,” you might’ve been surprised to learn that the 2008 recession was largely caused by risky financial bets, shady practices, and gambling on a housing market that was ready to burst.
The film breaks down some pretty complicated financial concepts with help from a few unexpected guest stars. Margot Robbie, Anthony Bourdain, Selena Gomez, and economist Richard Thaler pop in to explain things like subprime mortgages and synthetic collateralized debt obligations in a way that actually makes sense.
For a lot of people, it was the first time they really understood what it meant to “short” the housing market. That’s where Michael Burry comes in. He’s the hedge fund manager played by Christian Bale, and he was one of the first to notice something wasn’t right. He even asked for a way to bet against the housing market, which at the time was a pretty radical idea.
Yeah, that was our expression too. #TheBigShort pic.twitter.com/lOJZfaS9vA
— The Big Short Movie (@thebigshort) February 27, 2016
Now, with talk of another housing bubble in the air, some folks are wondering if it’s time to take precautions. But according to most experts, it might be too early to sound the alarm.
Here’s what it means and how to short the housing market:
What does it mean to short the housing market?
Shorting the housing market basically means placing a bet that real estate prices are going to drop. It’s a way for investors to protect themselves from losses or even make money if property values start falling.
In 2008, even though there were warning signs everywhere, mortgage lenders kept pushing the idea that real estate was a guaranteed win. Most people believed home prices would just keep going up. But of course, that didn’t happen.
The market crashed. A few savvy investors saw it coming and figured out a way to profit from it. They helped create a credit default swap (CDS) market, which let them bet against mortgage-backed securities tied to housing. In other words, they shorted the market and made a lot of money when it all fell apart.
Normally, short-selling involves borrowing something like a stock from a broker, selling it while the price is high, and then buying it back later if the price drops. The profit comes from the difference. But if the price goes up instead, the losses can pile up quickly.
In the context of housing, though, you can’t directly short a house. Sometimes people confuse it with the term “short-selling a house,” which actually means selling a home for less than what’s owed on the mortgage. That usually happens when a homeowner is in foreclosure.
So when people talk about shorting the housing market, they’re really talking about betting that the real estate market will decline. Since you can’t short houses directly, investors use other tools like real estate investment trusts (REITs) or stocks from companies in the housing industry.
Finding brokers that allow shorting of REITs or housing-related stocks can be tricky, so most of this kind of trading is done using derivatives like CFDs, or contracts for difference, and spread bets. The tools let traders speculate on price movements without actually owning the asset, making it easier to bet against the market.
When did Michael Burry short the housing market?
In 2008, Burry, a well-known figure on Wall Street, noticed a lot of subprime home loans were on the verge of defaulting. Seeing an opportunity, he bet against the housing market by putting over $1 billion of his investors’ money into credit default swaps, which basically let him profit if those loans failed.
He had been anticipating trouble in the housing market since early 2007, predicting that rising interest rates on adjustable-rate mortgages would push many homeowners into default. As the head of Scion Capital, he pushed to create a way to short mortgage-backed securities using these swaps.
This was a big gamble. The banks agreed to the bet, but Burry had to pay large monthly premiums to keep it going, which frustrated a lot of his investors. But he stuck to his research.
When the financial crisis hit in 2008, Burry’s bet paid off in a huge way. His fund skyrocketed in value, jumping 489% and earning a total profit of more than $2.69 billion, even after all those premium payments.
People started calling him an investment oracle. His approach has always been contrarian and deeply rooted in research and value investing, much like the philosophy of Benjamin Graham. He even played a role in the early days of the GameStop stock frenzy in 2021, thanks to his early investment in the company.
BREAKING 🚨
Michael Burry just reported liquidating his entire portfolio
Except for one company – Estée Lauder $EL pic.twitter.com/5PAJ8qFzFb
— Michael Burry Stock Tracker ♟ (@burrytracker) May 15, 2025
Over the years, he’s become known for spotting bubbles before they burst and has been vocal about the potential dangers of passive investing and rising inflation. But he has not shorted the housing market recently.
How to short the housing market now
If you think the housing market is going to drop, there are a few ways you can try to make money from that. Here’s a simplified breakdown of your options:
Shorting a REIT
A Real Estate Investment Trust, better known as a REIT, is a company that owns and manages income-generating real estate, like apartments, hospitals, or shopping centers. People usually invest in REITs when they think property values will go up. But if you expect prices to fall, you can short a REIT instead. That means you’re betting the value of the REIT will drop.
To short a REIT, you can either borrow and sell shares through a broker or use tools like spread betting or CFDs (contract for difference), which let you bet on the price movement without owning anything. You’ll need to research the REIT you’re targeting, do some analysis, choose your strategy, and open a trading account. If you’re new to this, you can practice using a demo account first.
Shorting a real estate ETF
ETFs (Exchange-Traded Fund) are funds that track a group of related investments. Some real estate ETFs follow REITs or companies tied to housing, like builders or suppliers. If you think the housing market is going down, you can short-sell one of these ETFs. That means you’re betting the fund will lose value.
For example, the ProShares Ultra Real Estate ETF follows an index of real estate companies. If that index drops, the ETF likely will too, and you could make a profit. But if it goes up instead, you’d take a loss.
Buying an inverse real estate ETF
Inverse ETFs are made specifically for bearish investors. These go up in value when the market they’re tracking goes down. So instead of short-selling, you can simply buy an inverse ETF to benefit from a market drop.
Some inverse ETFs are leveraged, which means they aim to multiply the gains (or losses). For example, the Direxion Daily Real Estate Bear 3X ETF tries to triple the daily opposite return of a real estate index. These can be high risk, though, because small moves in the market can lead to big swings in your investment.
Shorting individual real estate stocks
You can also short-sell shares of specific companies tied to housing, like home builders or suppliers. If you think one of these companies is going to struggle, you can short their stock by opening a sell position. If the stock price drops, you make money when you buy the shares back at a lower price. But if the price goes up, you’ll take a loss.
In other words, there are several ways to bet against the housing market. Each has its own risks and tools, so it’s important to do your homework and decide which one fits your strategy and risk level.
Don’t take our word for it, make sure you find a good financial adviser to instruct you on your investments.
Is the housing market dropping soon?
While some believe a correction is overdue, experts urge caution, especially for those looking to profit from a potential downturn.
Robert R. Johnson, Professor of Finance at Creighton University’s Heider College of Business and author of Investment Banking for Dummies, told ReadWrite that shorting the housing market goes against decades of consistent growth.
“The biggest pro of shorting a market is that if your timing is correct, you can make a lot of money. The problem is, as stated above, on average, housing prices increase and timing any market correctly is near impossible.” – Robert R. Johnson, Creighton University Professor of Finance
“According to data from Zillow, in the past 20 years, the average home price in the US has grown by 6.6% annually,” Johnson said. “So, when one shorts the housing market, one is betting against the long-term trend.”
Johnson warned that the risks of shorting can be severe. “When one purchases an asset, the most one can lose is 100% — that is, if the asset becomes worthless. But, when one short sells an asset, one’s loss is theoretically unlimited. That is, prices can increase by more than 100%, but they can only fall 100%.”
Shorting the market can be profitable, but only if timed perfectly. Johnson acknowledged that “the biggest pro of shorting a market is that if your timing is correct, you can make a lot of money.” He referenced Burry, of course.
But Johnson was quick to add a note of caution: “The problem is, as stated above, on average, housing prices increase and timing any market correctly is near impossible.” He reminded investors of economist John Maynard Keynes’ warning that “markets can remain irrational longer than you can remain solvent.”
Alex Windsor, owner of Betting Tools, also stressed that shorting can be a way to act on overinflated housing prices, but only for those who truly understand the risks.
“There’s often a narrative that housing ‘must crash’, but narratives aren’t markets. Betting against real estate is a bet against people’s willingness and ability to keep paying up. You need be 100% committed as you’re betting against the government and the market.” – Alex Windsor, Betting Tools owner
“If you’re convinced a correction is overdue, especially in markets where interest rates are rising or affordability is at historic lows, it’s one of the few financial opportunities where you can actually profit from decline,” Windsor said.
However, he added that housing behaves differently from stocks. “The housing market doesn’t behave like a stock, it tends to be slow-moving, and heavily influenced by government policy, such as packages or interest rate freezes.”
Windsor warned that investors could be stuck waiting a long time if they’re wrong, or even just early. “Shorting too early can tie up money for months or even years. And with rising rents, strong demand, and limited supply in many regions, the crash some are waiting for may never actually happen.”
He pointed out that rhetoric alone isn’t enough: “There’s often a narrative that housing ‘must crash’, but narratives aren’t markets. Betting against real estate is a bet against people’s willingness and ability to keep paying up.”
So the bottom line is proceed with caution.
Both experts agree that while shorting the housing market can look appealing when prices seem unsustainable, it’s a high-risk move that depends heavily on timing and strategy.
“For retail investors tempted by headlines or AI-driven predictions, I’d urge caution,” Windsor said. “You might be right, but being early or using the wrong product can cost you. It’s not just about spotting a downturn, it’s about structuring your bet correctly and managing the risk.”
So, is the housing market about to drop? It’s possible. But whether you’re betting on a crash or staying invested, the message from the pros is clear. Timing is everything, and success is far from guaranteed.
Featured image: Ideogram
