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Climate change will break the housing market, says David Burt, who predicted the 2008 financial crisis



The risk of the housing market from underestimated climate change echoes lessons from the 2008 subprime mortgage debacle – as it looks the chance to capitalize on these miscalculations.

That's the view of David Burt, whose old firm and its timely escape from Michael Lewis's book "The Big Short."

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, it presents a lot of the same risks. A lot of real estate is massively overpriced and a risk a lot associated with that and the big risk is another foreclosure crisis. Now, a very different dynamic creates a mispricing, but actually magnitude-wise it looks pretty similar, maybe even bigger. '
                  


David Burt
                          

The first serious market ripples from the nonchalance industry, Burt says, could materialize as early as next year.

Burt was a consultant at Cornwall Capital, a firm that made about $ 80 million when it shorted the subprime mortgage market whose eventual implosion of the left housing market in shambles and lured well-positioned investors to pick through the bones. Cornwall was profiled in the Lewis narrative and one of Burt's colleagues was played by Brad Pitt in the movie adaptation.

As Vice reports, just as Burt did before the last crash, he had his big-time investing job left, this time splitting with the $ 1

trillion Wellington Management. Burt now heads an investment firm that believes it can profit from the lack of attention being paid to the risk of climate change in a property industry that's building, buying, selling and lending (cheaply) without taking into account rising sea levels and inland flood risks .

The problem, other climate change experts allege, starts with government flood maps that under-report risk and continues through complex multilayer housing, lending and insurance markets where risks are diluted, or at least mispriced.

Between $ 60 billion to $ 100 billion worth of mortgages for US coastal homes are issued every year. Some 311,000 existing coastal homes will be repeatedly flooded, or lost altogether, within the next 30 years, according to sea-level calculations that the Union of Concerned Scientists publishes. That means the often high populations of California, Texas, Florida, Maryland, New Jersey and New York are vulnerable, as are retirement destinations including the Carolinas.

Read : The number and total value of flood insurance policies has been declining since 2006, meaning that people that purchased A property in coastal areas especially may be at increased risk of defaulting on their mortgages, a recent academic paper says.

In 2016, Freddie Mac's then – chief economist Sean Becketti wrote that “economic losses and social disruption [of rising seas on coastal housing] may happen permanently, but they are likely to be greater in total than those experienced in the housing crisis and the Great Recession.

Burt sees an opportunity but says he also wants to sound the alarm.

"I love the environment and nature and much of my joy in life comes from going for walks in the woods or on the beach with my family," he told Vice. “We have no idea how bad things can really get, there are far greater risks associated with climate change than depreciating home values ​​and some of them are just really, really scary.”

Read : As the California wildfires rage on, what you need to know about disaster insurance


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