David Burt Predicts Climate Change Will Break The Housing Market
If you’re a fan of the “Big Short”, you know who David Burt is. He’s the guy who timely predicted the housing market crash in 2008. Now the housing market is at risk of underestimated climate change. he’s predicting
He claims it echoes lessons from the 2008 subprime-mortgage debacle. Burt makes a climate change and subprime lending connection in a recent interview with Vice:
There’s a lot of parallels, it’s a big real estate mispricing issue. At its core that presents a lot of the same risks. A lot of real estate is massively overpriced and there’s a lot of risks associated with it. The big risk is another foreclosure crisis. Now, it’s a very different dynamic that’s creating the mispricing. But actually magnitude-wise it looks pretty similar, maybe even bigger.
David Burt also says the effects of climate change could materialize as early as next year.
Burt’s new investment firm believes it can profit from climate change and the lack of attention to it. Namely, in the real estate industry.
Government Flood Maps Don’t Reflect New Risks Due To Climate Change
The problem starts with government flood maps that under-report risk. As a result, this information trickles down through the complex multilayer of housing, lending, and the insurance market. Thus, flooding risks are diluted and insurance is mispriced.
Lenders write between $60 billion to $100 billion worth of mortgages for U.S. coastal homes each year. Continual flooding will affect nearly 311,000 existing coastal homes within the next 30 years. That means high-population states of California, Texas, Florida, Maryland, New Jersey, and New York are vulnerable. North and South Carolina which have become hot spots for retirement will also be affected.
A recent academic paper says the number and total value of flood insurance policies have been declining since 2006. meaning that households that purchased a property in coastal areas especially may be at increased risk of defaulting on their mortgages.