A major player in the “Big Short” who predicted the 2008 housing crisis thinks history may be repeating itself because the mortgage market is underestimating a huge systemic risk.
Dave Burt, CEO of investment research firm DeltaTerra Capital, was one of the few skeptics who recognized the real estate sector was teetering on the brink of collapse in 2007.
He helped two of the protagonists of Michael Lewis’ bestselling book “The Big Short” bet against the mortgage market in the lead-up to the 2008 economic collapse. As it turned out, they were right and made millions.
Now, Burt believes the mortgage market is underestimating another systemic issue: flood risk. If realized, he warns the fallout could resemble the massive correction seen during the global financial crisis.
“Ultimately, until people have good information about what these climate-related costs are going to look like, we’re creating new problems every day. I think that’s really the crux of the matter,” Burt told CNBC.
“Homes wrecked by a flood become worth dramatically less than before the climate crisis, putting mortgage borrowers at risk of not being able to pay back their loan.
‘Ultimately, until people have good information about what these climate-related costs are going to look like, we’re creating new problems every day. I think that’s really the crux of the matter,'” he said to The New York Post.
He’s been ringing the alarm bells for quite some time. In April, he told a videoconference, “I’m always on the lookout for these big systemic issues and there’s a few reasons for that.”
“If something is mispriced, then as an investor, which has been my job for most of my career, your main opportunity to add value is to identify something that is either too cheap to purchase for your clients or something that it is too expensive to sell for your client,” he added.
He has identified single-family housing as posing the biggest threat and pointed to Hurricane Ian, which a category 5 hurricane that caused more than $100 billion in damage last fall.