Investment Guru David Burt was immortalized in the film “The Big Short” when Brad Pitt played a character loosely based on him. Burt famously predicted the financial crash of 2008. Now he’s at it again. This time, however, he is saying that the next housing collapse won't come in the form of bad mortgages but rather bad weather.
Soaring Insurance
After repeated extreme weather events in Florida, home insurance has skyrocketed to the point that many owners no longer feel it feasible to continue living there and have put their homes up for sale. “In Fort Myers and [nearby] Cape Coral, we have 12,000 properties for sale. Five years ago, maybe there would be 30,” real estate agent Susanne Perstad told The Times of London. “There’s so much property for sale — maybe five or six houses on every street — and nothing sells. It’s insane.”
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A Housing Bubble
Burt, founder of DeltaTerra Capital, sees the warning signs of another real estate collapse. In the mid-2000s, most people didn’t take his predictions of a housing collapse seriously. He made a fortune by betting against the soaring housing market. “This is a problem of overvalued assets. It’s a bubble,” he told The Times. When things correct, you could see it feeling like the great financial crisis in those markets.”
20% Of Housing Is Facing A Price Crash
Burt told The Times that about 20% to 40% of America’s 91 million homes will suffer a price crash over the next five to six years. That means that a large section of the nation’s housing stock could be wiped out. Increasingly catastrophic weather events will make many houses uninsurable, setting off a domino effect.
The Great Repricing
Burt isn’t the first person to ring the alarm bells about insurance. In 2019, Jeffrey Gitterman, who founded the climate-focused investment firm Gitterman Wealth Management, coined the term “The Great Repricing” for this very reason — high insurance costs sparked by increasingly extreme weather, The Times reported. He predicted what we see now in Florida, California, and the water-starved Sunbelt.
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The Math Doesn’t Work
According to Günther Thallinger, a board director at German insurance giant Allianz, insurance is all about math, and worsening weather is tipping the math out of favor with insurers like him.
“We are fast approaching temperature levels — 1.5C, 2C, 3C — where insurers will no longer be able to offer coverage for many of these risks. The maths breaks down: the premiums required exceed what people or companies can pay,” he told The Times. “The economic value of entire regions — coastal, arid, wildfire-prone — will begin to vanish from financial ledgers. Markets will reprice, rapidly and brutally. This is what a climate-driven market failure looks like.”
Worse Than 2008
Burt feels that the impending insurance disaster we currently face could be worse than the 2008 housing crash. “What’s happening now is a more limited subset of homes than in 2008, but in a way it is worse, because the changes are permanent,” told The Times. “Governments can’t change the laws of physics. The valuation gap is already there and will have to close. All they can really do is create a more organized and less disruptive transition.”
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