The video explores the potential financial crisis brewing in the housing market due to mispriced flood risks, drawing parallels to the 2008 financial crisis. Dave Burt, who foresaw the previous crisis, warns that flood threats are vastly underestimated, particularly in the US real estate market. The video discusses Burt's view that home values could face significant losses, impacting homeowners and the broader economy.

The video further emphasizes the global nature of flooding hazards, highlighting how several countries like Pakistan, Nigeria, and developing cities in Asia are already experiencing severe impacts. Such events often escalate to humanitarian crises as governments in developing nations struggle to manage the aftermath of acute weather events and the economic fallout. The discussion expands on the economic implications of climate-related disasters in areas like Florida and the UK, showcasing their respective vulnerabilities.

Main takeaways from the video:

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Key Vocabularies and Common Phrases:

1. savvy [ˈsævi] - (adj.) - Having practical knowledge and understanding of something, particularly in a specific area. - Synonyms: (shrewd, astute, canny)

In the run up to the 2008 financial crisis, a few savvy skeptics understood what would later become obvious.

2. mispriced [mɪsˈpraɪst] - (adj.) - Having an incorrect or inaccurate price, often lower or higher than the true value. - Synonyms: (incorrectly priced, undervalued, overvalued)

Burt says that flooding is easily among the most mispriced climate hazards in the us real estate market.

3. aggregate [ˈæɡrɪˌɡeɪt] - (adj.) - Formed by the collection or accumulation of parts into a whole. - Synonyms: (total, collective, cumulative)

Our base case correction scenario leads to home value losses of about 800 billion in aggregate terms.

4. exacerbating [ɪɡˈzæsərˌbeɪtɪŋ] - (verb) - Making a problem or situation worse or more severe. - Synonyms: (aggravating, intensifying, worsening)

Hurricane Ian, which devastated the Americas, was found to be by far the costliest natural disaster of 2022, racking up roughly $100 billion in losses and exacerbating an already urgent housing crisis in Florida.

5. monsoon [mɒnˈsuːn] - (noun) - A seasonal prevailing wind in the region of South and Southeast Asia, bringing heavy rains. - Synonyms: (rainy season, downpour, deluge)

2022 saw apocalyptic floods in Pakistan following a record breaking monsoon rainfall.

6. humanitarian [hjuːˌmænɪˈtɛəriən] - (adj.) - Concerned with or seeking to promote human welfare. - Synonyms: (compassionate, benevolent, charitable)

The governments are unable to handle the losses that come with that event. Then you end up with this being more of a humanitarian crisis.

7. overlapping [ˌəʊvərˈlæpɪŋ] - (verb) - Extending over and covering a part of something else. - Synonyms: (intersecting, covering, coinciding)

It overlaps the fact that flooding is not well managed.

8. scenario [səˈnɑːrɪoʊ] - (noun) - A hypothetical situation or a specific set of circumstances. - Synonyms: (situation, context, case)

Our base case correction scenario leads to home value losses of about 800 billion in aggregate terms

9. holistic [hoʊˈlɪstɪk] - (adj.) - Related to or emphasizing the importance of the whole and the interdependence of its parts. - Synonyms: (comprehensive, all-encompassing, integrated)

We fundamentally believe that there has to be a more holistic approach to planning and housing reforms.

10. complacent [kəmˈpleɪsənt] - (adj.) - Showing a smug or uncritical satisfaction with oneself or one's achievements. - Synonyms: (self-satisfied, assured, content)

People shouldn't feel complacent just because their insurance prices haven't gone up a ton yet.

A Big Short investor sees financial disaster brewing in housing markets again

In the run up to the 2008 financial crisis, a few savvy skeptics understood what would later become obvious. The mortgage market was teetering on the brink of collapse. One of the investors who saw it coming now believes financial disaster could be brewing in the housing market yet again. This time, the threat is from flooding.

This one is better. Dave Burt, who, who is profiled in Michael Lewis bestselling book the Big Short, and saw one of his colleagues played by Brad Pitt in the movie adaptation, says the fallout from flood risk could resemble the extraordinary correction seen 15 years ago. And then that happens. What is that? That's America's housing market. Did you feel that perhaps Brad Pitt maybe was more better suited to playing you? I don't know. I think he did a great job. It was a really entertaining movie. Even though they might not have gotten every technical point exactly right. I thought it was a good explainer, a good explainer movie for that whole saga.

This time, Burt says that flooding is easily among the most mispriced climate hazards in the us real estate market, especially for single family properties. Our base case correction scenario leads to home value losses of about 800 billion in aggregate terms. So a pretty meaningful hit even to a $40 trillion market. Flooding is recognized as the most common natural disaster in the US. And yet, despite that, the risk of flooding to housing markets is feared to be far greater than current government estimates.

Millions of households in the US and worldwide are thought to be exposed to this hidden time bomb, an issue that's predicted to worsen as the climate emergency deepens. Several cities across the country, stretching from Los Angeles on the Pacific seaboard, New York on the east coast, and Cape Coral in Florida, are known to have a number of properties heavily exposed to flood risk.

Researchers say the cost of unrealised flood risk in the US is a growing threat to the economic stability of households, as well as the broader mortgage market. I think that the real problem is that a lot of the biggest risks are actually in developing nations. So it's not about the value of homes causing mortgage defaults. It's more that an acute event occurs and actually the governments are unable to handle the losses that come with that event.

Then you end up with this being more of a humanitarian crisis, which obviously affects everyone. To the extent that we're all linked in this global economy, extreme weather events brought on by the climate crisis are already evident. So too are the risks to peoples homes. 2022 saw apocalyptic floods in Pakistan following a record breaking monsoon rainfall. The disaster submerged one third of the south asian country and damaged more than 2.2 million houses in the same year.

Nigeria faced its worst flooding in a decade. The destruction impacted nearly 3 million people across the country, killing hundreds as water submerged farmland and infrastructure. Cities like the indonesian capital of Jakarta and Ho Chi Minh city in Vietnam are sinking too, in part due to excessive groundwater extraction for drinking and everyday use by residents, making homes in these low lying areas even more vulnerable to flooding.

Meanwhile, Hurricane Ian, which devastated the Americas, was found to be by far the costliest natural disaster of 2022, racking up roughly $100 billion in losses and exacerbating an already urgent housing crisis in Florida. In the UK, at least one in six people in England are recognized as being at risk from flooding from both rivers and the sea. Densely populated cities such as London, Cardiff and Edinburgh could see damage increase by more than 25%, even under a scenario where global heating is limited to 1.8 degrees celsius above pre industrial levels.

Here in England's southwest city of Bristol, local policymakers have described the risk from flooding and rising sea levels as a humongous threat. And that warning comes as thousands of new homes are already being planned in parts of the city identified as acutely vulnerable to flooding. I sat down with Paul Bates, a UK flooding expert and professor at the University of Bristol, to find out more. Most people, when they think about flooding and the climate crisis, think that things will get awful lot worse into the future.

But it overlaps the fact that flooding is not well managed. Now, we've got a lot of buildings in the UK that are in flood zones, like where we're sitting, and that doesn't really change. And the better we manage emissions, the greater the percentage of risk that's with us now. So if the increase stays below 10%, then that means, obviously, that 90% of the risk we'll face in the future is already with us. In the UK, expected damages from flooding are estimated to be around $870 million per year.

This is not only seen as a significant drain on the economy, but also a considerable sum of misery for those affected. Not everyone is as concerned about the potential impact of flooding, however, many investors remain skeptical about the impact of climate risks on their portfolios. While almost two thirds of uk households see flood risk as a problem that they'll need to worry about, a key point that is not well understood is that most of the UK's future flood risk is already here.

Oliver Wing, chief research officer at flood modeling firm Fathom, explains how these risks are likely to evolve under different global heating scenarios. As a national overview, you generally aren't seeing a huge amount of change if warming is limited to 1.8 degrees by the end of the century. But that national picture really masks regional differences. There's winners and losers when it comes to flooding in the UK. Under climate change, a 3.3 degree world would be a disaster for so many reasons.

But when we look at the available information to us, you can see this map suddenly lighting up, right? That places that might have seen quite a modest change nationwide are actually seeing huge increases in this warming world. We often hear a lot, right, about what the cost of climate action might be, how expensive an energy transition might be. Well, here's the alternative, right? This is the cost of doing nothing. And it's massive.

For those sounding the alarm, the crux of the problem is that until home buyers and owners have sufficient information about what climate related costs could look like, new problems are being created every day. A 2023 study looking at the us housing market warned the increasing likelihood and cost of flooding had fueled concerns that the mortgage market is mispricing these risks. And as a result, it's creating a $200 billion real estate bubble. Should this bubble burst, researchers say households could end up losing a significant portion of their property value overnight.

It's currently estimated that more than 14.6 million homes in the US, or 10% of all properties, face a 1% annual likelihood of flooding. An expected increase in the frequency and severity of flooding could expose another 1.6 million homes by 2050, while annual damages are forecast to jump 26% over the same period. Besides coastal housing markets, researchers have warned that low income households and communities are also particularly vulnerable to home devaluation.

For Burt, the recovery in Florida from Hurricane Ian is one hell be continuing to keep a close eye on, especially because the storm surge exposed a flood insurance nightmare for homeowners. South coast of Florida, Florida I mean, one area we're watching very, very closely is Lee county, which unfortunately, you know, withstand a devastating hit from Hurricane Ian in 2022. We had in 2021, we'd actually placed Lee county at the very top of our list for counties or metropolitan areas within the US that had the highest mispriced flood risk.

So we're watching that area very closely to see how markets are able to come back from that event. It's not just Florida that's wading through an insurance crisis. Many households and businesses in Australia have seen insurance premiums skyrocket after a near endless series of climate related disasters. It's a problem that's particularly bad in flood hit areas of the country.

Meanwhile, in Germany, which incurred excessive flooding in 2021, insurers have warned that insurance premiums may get out of hand unless the government stops building new homes in flood prone areas. Sarah Smith, the head of home underwriting at LV General Insurance, feels the flood risk to households demands more of an integrated approach. We fundamentally believe that there has to be a more holistic approach to planning and housing reforms around, you know, where we build homes in the future.

The immediate flood risk might be known, but what isn't often known and taken into consideration is that of the future flood risks, and we would like to see more done in that space. So what is it exactly that people can do to mitigate the risk of flooding? Consumer groups and government agencies typically advise using online resources to identify the flood risk in your area and to purchase affordable home insurance to cover you in the event of flooding.

Resistance measures to stop floodwater getting into your property and reduce the damage if it does are also recommended. These steps can include flood barriers, installing non return valves into drainage pipes, water resilient paints and raised electrical sockets. Ultimately, the problem is that doing nothing makes the problem worse every day. So it's really, it just needs to be an elevated awareness.

People shouldn't feel complacent just because their insurance prices haven't gone up a ton yet. And they have to realize that even if you're in a safe place that doesn't have this exposure directly, all of these systems are tied together.

Housing Market, Climate Change, Real Estate, Economics, Global, Flood Risk, Cnbc International