US housing could see a 2008-style correction as rising flood risk means 20% of the market could be mispriced, 'Big Short' investor says

• "Big Short" investor Dave Burt warned that flood risks have put 20% of US housing in danger of devaluation.
• If his forecast comes to fruition, that could mean a housing collapse reminiscent of 2008.

As much as a fifth of US housing could be overvalued, because the market is failing to price in home exposures to flood risk, according to DeltaTerra's Capital Dave Burt.

If his warnings come to fruition, that could mean a housing collapse reminiscent of 2008.

"We think of this repricing issue as maybe a quarter of the size and magnitude of the [global financial crisis] in aggregate, but of course very, very damaging within those exposed communities," Burt told CNBC in April.

Known for being one of the few to predict the 2008 financial crash — a feat documented in Michael Lewis' best-seller "The Big Short" — Burt cited Florida's recovery after Hurricane Ida as an example of the next major systemic issue to look out for. The event caused $65 billion in insured damage and led to a surge in insurance pricing.

Meanwhile, the state's increasing exposure to severe storms — which are growing in strength and number as the planet's climate has gotten warmer — is causing Florida residents to move, with further implications on housing prices and demand.

His remarks stand alongside already uncertain market forecasts, where tightening monetary policy over the past year has led to a jump in mortgage rates to a peak of nearly 7%, driving prices down.

But while analysts debate to what extent the current downslide may continue, a February report from Nature Climate Change found that the market may be already overvalued by $200 billion on account of flood risks — a factor that is oftentimes not priced in.

Home owners may also not be sufficiently informed about such hazards, putting them at risk of suddenly seeing their properties fall in value after purchasing a house.

"When you buy a home, one of the most important considerations is the cost of maintaining that home and I think so many important decisions are made based on that," Burt said.

The study, authored by researchers from a number of organizations, including the Federal Reserve, also noted that annual residential property damage could exceed $32 billion. The average annual loss could grow by 26% by 2050.