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If you sell and buy around the same time, the market situation (hot, cold, before, after, or no crash) is of little relevance - it just affects the size of the numbers on both contracts, and about the same, so it's mostly a wash.

If you want to take advantage of your prediction, you have to split the selling and the buying in time - several months at least - and sell high, wait until after the predicted crash, and then buy low. Obviously, that implies that you rent in between (or live in your car, or with your parents, or whatever). And if the crash doesn't come - because your prediction was wrong - you don't make money on it, but lose the value gain from the period you waited. No risk, no gain.

Tricky choice, but there's a couple of things to consider. You said you plan on upgrading to a more expensive house, so you might save more on the new house post-bubble than you'd lose on your current house. Suppose you want to move from a $1M house to a $1.5M house - you'll need $0.5M. The bubble bursts, and housing prices fall 20% across the board. Now you have an $0.8M house and want to buy a $1.2M house, so you only need $0.4M to make up the difference. That's a big assumption that housing prices fall equally in all areas, but you get the idea.

The other things to consider is how easy it will be to sell your current house. Housing prices fall because the demand isn't there. Even with a lower price, you may have more trouble finding a buyer post-bubble, so consider how important timing is for the sale of your current home.

If you think you can actually pull this off, the best move is to detect bubble, sell, rent, wait for crash, buy. But you probably can't.

Let's put it this way. I detected the 2008 bubble in 2004. For this scheme to work you would have to have been able to say beforehand when the bubble would burst and sell close to the burst. My detection in 2004 was too soon and would have eaten almost all the profit if I had sold on it.

However with no equity, don't even bother trying. Interest rates and housing costs are inversely coupled. You can't play this game w/o a lot of equity because the interest rate swings will eat it up.

I'm no financial expert, but one other thing I'd think deserves a bit of consideration is which end of the process that will be tough.

When the market is high, you'd expect ease at selling and challenge at buying.

When the market is low, you'd expect ease at buying, but challenge at selling.

So the period in the bubble would seem more rough if you need to sell before buying, because options to then buy may be very limited or even non-existent for a period. You'd have to be very focused at timing things just right, not to make any profit, but to just have a place to live at a reasonable price/convenience.

Whereas in a downturn, at least you could focus on selling your house, however long it takes, and then have many more options available to choose from when moving on. And if there turns out to be any delay between your selling and your subsequent buy, it may be a financial detriment in an inflating period, versus generally being positive in a downturn.

So stress-wise, unless you can handle it financially, I'd think waiting until it cools off may be easier... and give you more options. But who knows if or when it will occur!

Interest rate wise... you also might expect interest rates to drop some eventually if the economy significantly sours... but rates even now are still quite low, so perhaps the potential benefit to you from a housing recession may be outweighed by the dangerous potential of greater damage if significant rises continued.

In the end, I personally think it's really goes back more to the house/location you want to be in rather than trying to sneak some extra money out of the transaction. In the long-run the winners and losers tend to balance out, and if everyone could predict the right time, there'd be nothing gained from it.

One way or another, you are going to experience the difficulty of the market.

When a market is up, there are usually more buyers than sellers. That's what's driving the price up. This shows in how quickly a fairly priced property will sell. As a seller, this is fun. You often get the price you ask for, sometimes even more, and you sell quickly. But if you need to turn around and buy a place in this same market, you get to experience the crappy part. You are competing with all the other buyers, so you get the stress of having to check listing sites multiple times per day because places are moving that fast. And when you find a place you like, you call and get the disheartening news that they already have 8 offers, it's been bid up, so if you're not paying cash you can piss off.

This is all basically reversed if you sell/buy when the market is down. You'll really hate the selling part, probably not get the price you want, have few offers, and it'll take longer than you hoped. As a buyer, you'll have tons of time and options. It'll be downright fun.

The only way to have your cake and eat it to is to sell when the market is up, rent or move in with mom and dad, then buy when the market is down. But renting or moving in with the parents for 6 to 18 months is not really my idea of good cake.

Inasmuch as the actual numbers if you buy/sell at the same time, if the prices are fair, you are essentially just moving equity to a different property. You'll find that it's pretty close to even when all is said and done.

Prices are not the only issue. After a bubble bursts, it can be very difficult to sell at any realistic price, and so you can be stuck where you are while watching lots of affordable properties that you would like to buy come and go on the market. But also remember that bubbles can only be detected in retrospect. Asset price rises that seem irrational are often followed by a correction, but not invariably.

For most people, most of the time, the issue is qualifying for the mortgage, not the price differential between the old house and the new house.

The problems is that periods when prices go down are often times when interest rates go up, like now. It tends to be a wash, since you wind up with the same monthly payment.

You have a particular situation which may bias your decision towards "buy now", which is that you have an ARM. Since your mortgage rate is going to adjust in two years, the fact that we are in a period of rising interest rates means that you are going to either have move up or refinance.

Do some research on the previous bubbles and see which areas recovered faster

Some of the things that prevent a market from dropping too much is the school district. More recently is the walkability and general feel of the neighborhood.

As the population gets older, more people want to downsize, and if your current home is in a desirable area for folks whom want to downsize it might be better hang around for while.

You also need to consider the reasons for upgrading, if you need more space for growing family, then you don't want to wait around for bubble to burst.Like a rising tide raises all boats, conversely a ebbing tide will lower all the boats.

Like the other commenters said, get out of the ARM and get a fixed mortgage while you still can. The rates can shoot up very quickly without much warning.

Renting on a temporary basis is viable option, but if you have more stuff, that can fit into the apartment, you need to include the storage space. Don't forget to include cost of move from house to apt and to house. Look at the time span on how long you will be renting, consider that while you are renting the bubble might not burst, or if it does, the real estate in the area that you are looking at does not drop that much.

The trick is start renting before the bubble bursts, then move into a house afterwards. Both of my parents did that and it worked out quite well for them!