Stay away from bank stocks with turmoil in the sector far from over, 'Big Short' investor Steve Eisman warns

• Investors should stay away from bank stocks with more market turmoil on the cards, according to Steve Eisman.
• "They're still uninvestable," he said Tuesday.
• Eisman also said to avoid homebuilder stocks, which have been battered by rising interest rates.

Steer clear of bank stocks with the turmoil from earlier this year likely to rear its head again soon, Steve Eisman has warned.

"They're still uninvestable," the "Big Short" investor told CNBC's "Fast Money" Tuesday, citing tightening net interest margins, customers pulling their excess deposits, and regulators upping lenders' capital requirements as threats to the sector.

"The only reason to invest in banks is that they're cheap… but investing in something just because it's cheap is a value trap, and shorting something just because it's expensive is a death wish," Eisman added.

In March, Silicon Valley Bank collapsed after disclosing massive losses on its bond portfolio, triggering a crisis that drove the failure of other regional lenders, including First Republic.

The KBW Nasdaq Bank Index, which tracks banking stocks, has plunged nearly 23% in 2023 – a sharp contrast to the performance of benchmark gauges like the S&P 500 and Nasdaq Composite, which are still in the green for the year despite a rough couple of months.

As well as avoiding banks, Eisman said investors should stay away from homebuilding stocks, which he expects to struggle as the reality of higher-for-longer interest rates sets in.

The Federal Reserve has lifted borrowing costs from near-zero to around 5.5% over the past 18 months, driving up the average 30-year fixed-rate mortgage to 7.5%, per data from Freddie Mac.

"I wouldn't own homebuilders right now," Eisman said on CNBC's "Fast Money." "The homebuilders have been subsidizing their customers with lower rates, but even that's gonna bite."

"I don't think you should buy somebody who finances new cars or used cars, et cetera," he added. "Anything in that universe, I think, is just going to have trouble. Just because of simple math."

Eisman is best known for his big bets against the US housing market ahead of the 2008 financial crisis, as depicted in Michael Lewis' book "The Big Short".