‘Big Short’ investor warns flooding risk could call for another 2008 housing crisis

“Big short” investors who predicted the 2008 housing crisis fear history will repeat itself as the mortgage market underestimates the systemic risk posed by the floods.

Dave Burt, CEO of investment research firm DeltaTerra Capital, made millions during the subprime mortgage crisis while working for New York-based Cornwall Capital.

Cornwall’s success was later featured in Michael Lewis’ best-selling book The Big Short, which detailed the lead up to the 2008 economic collapse.

More than a decade later, Bart said he believes the mortgage market is missing the floods as a potential trigger for another housing crash.

DeltaTerra research finds that 20% of U.S. homes are “at significant risk” from flood-induced mispricing problems, leaving the housing market worth up to 2,000 more than the $45.3 trillion market value in 2022. It’s down $100 million, he said.

“We think this repricing problem is probably a quarter of the size and scale of what it used to be. [global financial crisis] Overall, of course, it’s been very, very damaging within those exposed communities,” Bart told CNBC over the weekend.

Dave Bert, whose predictions of a volatile housing market proved correct in 2007, fears history will repeat itself over flood pricing mistakes.

Bert warned that a 2008-style price correction would occur if lenders did not recognize the potential impact of flood risk. The value of flood-damaged homes is dramatically lower than before the climate crisis, putting mortgage borrowers at risk of not being able to repay their loans.

“Ultimately, until people are fully informed about what these climate-related costs will be, we will continue to create new problems every day. I think,’ he said.

Investor theories about floods are not new. He also shared his concerns about the increased risk of flooding with: CNBC in April.

“I always pay attention to these big organizational issues, for several reasons,” he told the media via videoconference.

“As an investor, if something is priced wrong, this is what I do most of my career, and the main opportunities to add value are things that are too cheap to buy to customers, or It’s about identifying which ones are too expensive for you to sell for your customers,” he added.

Burt pointed to Hurricane Ian in Florida as the flood that caused more than $100 billion in damage, revealing cracks in homeowners' flood insurance policies.
Burt pointed to Hurricane Ian in Florida as the flood that caused more than $100 billion in damage, revealing cracks in homeowners’ flood insurance policies.
Jeffrey Greenberg/Universal Images Group via Getty Images

He noted that single-family homes are the properties most at risk from flooding, the most common natural disaster that occurs in the United States.

Bert pointed to Hurricane Ian, which made landfall last September and caused more than $100 billion in damage. According to the National Oceanic and Atmospheric Administration, it was the third deadliest disaster in U.S. history.

Hurricane Ian has revealed cracks in Florida homeowners’ flood insurance, with many residents fighting over compensation checks that didn’t cover the cost of flood damage to their homes that were rendered uninhabitable. there is

“When buying a home, one of the most important considerations is how much it costs to maintain that home, and I think a lot of important decisions are based on that,” Bart told CNBC.

Bart’s comments come at a time of volatile monthly home sales.

U.S. new single-family home sales hit a 13-month high in April.

New home sales rose 4.1% to 683,000 units last month on a seasonally adjusted basis, the highest since March 2022, according to the Department of Commerce.

The boost is due to a persistent shortage of second-hand homes on the market.

However, the sales pace for the month was revised downward to 656,000 units as sales, inventories and monthly supply data appear to be close to pre-pandemic rates in January 2018.

Floods are the most common type of natural disaster that occurs in the United States.
Floods are the most common type of natural disaster that occurs in the United States.

New home sales are counted at the time of contract signing and are a leading indicator of the housing market. It is known to fluctuate from month to month.

The National Association of Realtors reported last week that prices rose in about half the country, with multiple offers and many homes selling above list price.

Meanwhile, existing housing inventory is still 44% below pre-pandemic levels, according to association data.

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