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There are new investment tools to protect the valuation of your home in the event that there is a break in the housing bubble. Merrill Lynch and other bankers are offering a new product called “hedgelets” that let investors bet on the rise and fall of ones house. These investments are complicated, however, for a savvy investor, they can provide some stability in a volitile real estate market for those who have a great deal of equity in their home.

From the Wall Street Journal:

Once, a home was a castle. Now it is looking more like Fort Knox — a pile of money in need of protection.

Amid warnings from economists that real-estate values in some parts of the country may drop eventually, there is a nascent movement to offer new investment products designed partly to hedge against falling property prices. The goal: Offer limited protection against the risk of riding real-estate prices back down again after the record run-up in recent years.

In recent months, Merrill Lynch & Co. and other investment banks have started offering investment products that will rise in value if a basket of housing-related stocks declines. Already, nearly $400 million of these investments have been sold, according to Daniel Carrigan, vice president for new-product development at the Philadelphia Stock Exchange.

The Chicago Mercantile Exchange also is preparing to announce plans to introduce in the second quarter of next year futures contracts based on home prices in each of 10 cities. It will also offer a composite contract covering all 10 cities. That plan follows the introduction last May by HedgeStreet Inc., based in San Mateo, Calif., of financial contracts called Hedgelets that let investors bet on a rise or a fall in home prices in six individual cities.

Strategies like these are far from foolproof, however. Derivative products like these can be complicated and risky, and none of them offers a perfect hedge against the risk that the value of any individual home will fall. But they do provide a new strategy for people worried about an eventual slump in housing.

For people who shy away from the complexities of derivatives, there are an array of other options for shielding home equity. These strategies range from the straightforward — for example, locking in a fixed-rate mortgage while rates are still low — to riskier approaches, including perhaps becoming a renter for a while.

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5. How a Real Estate Investment Company is looking to the Future