U.S. home values lost $1.9 trillion through the end of the third quarter, according to a recent Zillow Real Estate Market Report, and one in seven homeowners owed more on their mortgages than their homes were worth. When you're "underwater" on your mortgage, the situation can leave you gasping for financial breathing room.

Investors who expect real estate to remain in a downward spiral for a bit longer might want to consider an investment in a fund like the ProShares UltraShort Real Estate ETF (NYSE:SRS), which seeks returns that are two times the opposite of an index composed of listed U.S. real estate-related securities. If real estate stocks go down, then your shares go up. But the opposite also holds true -- and with double leverage, you'll feel a lot of pain if you guess wrong on the trend for property values. 

Fund specifics
The ProShares exchange-traded fund tracks the Dow Jones U.S. Real Estate Index, which includes companies that invest in shopping malls, apartment buildings, and housing developments, along with real estate investment trusts. Top holdings in the index include Simon Property (NYSE:SPG), Public Storage (NYSE:PSA), and Equity Residential (NYSE:EQR).

The index also includes the largest private landowner in the U.S., Plum Creek Timber (NYSE:PCL), as well as AvalonBay Communities (NYSE:AVB), which owns or controls nearly 50,000 apartment homes in 10 different states, giving it a well-diversified stream of revenue.

The fund itself does not hold individual stocks. Instead, it holds financial instruments such as swaps and other derivatives, which are expected to create the desired returns compared to the index. 

Fund facts

  • Year-to-date return as of Dec. 29: (39.8%).
  • Expense ratio: 0.95%.
  • Assets: $1.0 billion. 

Fund prospects and risks
Despite all of the maneuverings in Washington, the credit crisis seems to be here for a while. If the billions of dollars dispersed by the government finally help turn around the real estate market, then the risk of double inverse leverage will suddenly become quite obvious. Like many other industries, property developers such as Vornado Realty Trust (NYSE:VNO) are also actively seeking government assistance. However this plays out, it is likely to have a large role in the value of publicly traded real estate.

Only investors who are able to take on significant risk should consider a fund that is double leveraged. The common consensus appears to be that real estate returns will be negative for at least a year before turning up, but as is often the case in markets, betting with the majority opinion can sometimes lead you astray. For those investors who expect the real estate implosion to have staying power, the California real estate downturn of the late 1980s -- when it took nearly half a decade before prices moved up -- is one model of how this downturn could play out.

In the long run, though, this fund may already have seen its brightest days. Although, having fallen nearly 80% from its highs of just over a month ago, it's entirely possible that the fund could enjoy one more day in the sun before fading when real estate finally recovers.

Further Foolishness:

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.