What if everyone shorted the housing market?

[Phoenixmgs]

So I kinda had this thought after watching this clip where Jon Stewart asks why we couldn't use the bailout money for the housing crash to make those bad mortgages good and people could keep their homes as well. I immediately wondered what would've then happened to the people that shorted the housing market (like Christian Bale's character in The Big Short) as the housing market technically wouldn't have crashed then. That lead me to asking myself, what would happen if everyone purposefully didn't pay their mortgages and shorted the housing market (betting that it would fail) with said mortgage money? Wouldn't everyone make money on it then? Is that demonstrating some of the foundations of the whole economic market is broken?

Anyway, just a thought experiment I had. I wonder if anyone here knows what would happen under this hypothetical situation.

 

[Gordon_4]

What I never understood is why in cases where the rent was being paid to the agent regularly and in full, the bank just didn’t transfer the mortgage to the renter and be paid that way. They could then independently chase the shit merchant agent for what they owed and keep making a small profit and a family got to keep their house. That was as close to a win-win as that fiasco was going to produce.

 

[JoJo]

Every trade requires somebody at the other end making the opposite bet, so in practice, the market would likely be distorted beyond recognition long before everyone had put down their bets. Once they caught wind of what was happening, the big institutions would probably stop selling puts (bets that the market will go down) or charge extortionate premiums on them. Beyond that, the market under extreme conditions is very unpredictable. It's not inconceivable that large numbers of people entering the options market could lead to the big institutions loading up on shares on order to hedge their bets, unintentionally causing a spike in share prices due to increased demand (this has actually happened recently with Tesla shares).