I know this is an old question but you can use string operators for that purpose:
$ pwd
/home/kali/Documents
$ [ -z "${PWD%%$HOME*}" ] && echo ${PWD/$HOME/'~'} || echo $PWD
~/Documents
$ pwd
/etc/systemd/network
$ [ -z "${PWD%%$HOME*}" ] && echo ${PWD/$HOME/'~'} || echo $PWD
/etc/systemd/network
$ pwd
/tmp/home/kali/Documents
$ [ -z "${PWD%%$HOME*}" ] && echo ${PWD/$HOME/'~'} || echo $PWD
/tmp/home/kali/Documents
Now, you specifically asked about sed, I don't think it's the best tool or even necessary but you'd do:
$ pwd | sed "s|$HOME|~|""s|^$HOME|~|"
~/Documents