The housing market is undergoing a fundamental shift as mortgage rates rise and central banks around the world continue to fight inflation by raising interest rates. Against this backdrop, some, including “big short” investors, worry that the real estate sector is overlooking the systemic problem of flood risk.
“Big short” investors worry that history could repeat itself in the housing market due to the often-overlooked climate risk.
Dave Bart, CEO of investment research firm DeltaTerra Capital, was one of the few skeptics to recognize in 2007 that the real estate sector was on the verge of collapse.
He helped two of the main characters in Michael Lewis’ best-selling book, The Big Short, bet on the mortgage market ahead of the 2008 economic crash. After all, they were right, and they made millions in profit.
Burt now believes the mortgage market is underestimating another systemic problem: flood risk. If it does, he warns, the impact could be similar to the massive corrections seen during the global financial crisis.
“Ultimately, until people are fully informed about what these climate-related costs will look like, we’re creating new problems every day,” Bart told CNBC. I think that’s really the crux of the problem,” he said.
So why does the US housing market seem to underestimate the cost of flooding? What does this mean for homeowners and homebuyers in the UK and around the world? What can be done to mitigate risk?
See the video above for details.