The devastation caused by the Los Angeles area wildfires earlier this year has widespread implications for the national housing market, with one expert forecasting an economic collapse.
What is happening?
Dave Burt, founder of investment research and consulting firm DeltaTerra Capital, recently told CNBC that he expects a fifth of all homes in the United States to devalue over the next five years because of a warming climate.
"In the past, insurers have not increased prices because of these increasing weather events," Burt said. "That's all falling apart now because of the fragility of the system and some of the insurance market failures that we've seen in just the last few years."
Burt, who predicted the subprime mortgage crisis of 2008, thinks that there will be repercussions nationwide as extreme weather events — like the fires that swept through Southern California — force the insurance industry to increase the premiums that homeowners pay. And since the cost of owning a home is inversely proportional to its value, the latter may ultimately tank.
"We think that those 20% of markets could be down 30% over the next five years in value, which is very similar to the 2007 to 2012 great recession experience," he added.
Why is Burt's prediction concerning?
Burt's statement has been substantiated by a new study from First Street. The climate-risk firm projects that 84% of U.S. homes could decrease in value by 2055, reaching total losses of $1.47 trillion.
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The report found that insurance costs are expected to spike by 25% over the next three decades because of the underpricing of risk and the increasing likelihood and severity of extreme weather events.
"Climate change is no longer a theoretical concern — it is a measurable force reshaping real estate markets and regional economies across the United States," Jeremy Porter, head of climate implications research at First Street, told CNBC.
After all, such catastrophes caused $140 billion in insured losses last year worldwide, making 2024 the third-costliest year on record.
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Definitely 🙁 What is being done about the looming insurance crisis?
With homeowners either facing sky-high premiums or scrambling for alternatives after getting dropped by insurance companies, addressing the crux of the issue is a daunting but crucial task.
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That's what makes solutions that attempt to reverse the planet's overheating — which supercharges extreme weather — all the more important.
Whether it's new legislation that promotes energy efficiency, research that helps us move on from dirty energy sources, or small lifestyle changes that limit our reliance on plastic, every step can help mitigate the effects of rising global temperatures and climate disasters.
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