Benjamin Keys, a real estate and finance professor at the University of Pennsylvania’s Wharton School, is forecasting a more gradual decline in regional markets, rather than an imminent severe downturn. Most homes appreciated dramatically during the pandemic and unlike in 2008, few have to sell because of ballooning interest rates.
Betting against housing markets exposed to climate isn’t as simple as selling a stock short, and Burt won’t reveal his exact strategy. His firm is working with Intercontinental Exchange, owner of the New York Stock Exchange, and others to assess the sensitivity of $750 billion in mortgage-backed securities to climate shocks.
But he is also exploring ways to make an even bigger bet against the housing market in vulnerable places. He says he could, for instance, work with Wall Street banks to create special financial products that allow people to bet against mortgages, which are often pooled into securities sold to investors, in places most exposed to flood and wildfire risk. It’s possible to analyze the credit scores and geography of the bundled mortgages to identify those most at risk of default.
If enough investors took a stand, it could make markets price climate risk more accurately. “Markets would be more efficient if speculators were doing their job,” he argued.
