Someone suggested buying puts as a hedge against real estate decline. I have heard this idea before, but I don't think it really works. Puts are way too expensive because the market basically expects a huge decline.
Put another way, there is no market for specifically hedging against a California real estate price decline.
And honestly, who in their right might would take the other side of that bet? Who would insure against a California real estate price decline? Insurers need to make money.
If you live in a flood plain next to a huge river that floods regularly, if you live on a hillside with frequent landslides, and if you live near an active volcano in a lava flow area in Hawaii, you simply cannot get insurance because no insurer is stupid enough to insure against such a high likelihood high loss occurrence.
See this article from the Irrational Exuberance author Shiller who has been promoting the idea of insurance against property price declines. It makes sense in theory. But not sure it can work in practice.
http://cowles.econ.yale.edu/P/cd/d10b/d1098.pdf