L.A. wildfires are changing the U.S. housing market
The Ripple Effect
How the L.A. Wildfires are Changing the Housing Market
As the L.A. wildfires continue to rip across the region, they are leaving an undeniable mark on everything they touch. By the end of January, over 16,000 structures were destroyed, displacing millions of residents and endangering their lives, families, and livelihoods. This immense devastation has triggered a ripple effect that extends far beyond Los Angeles.?
Our hearts go out to the many people affected by this disaster. While we continue to contribute individually to the ongoing relief efforts, Everest Loan Officer Rebecca Jacob is stepping forward to weigh in on the impact this situation is having on housing.?
“We can already see the influence the L.A. wildfires are having on the market,” explains Rebecca. “It’s not just about housing either. Disasters like this impact the entire economy in a variety of ways. In particular, we’re seeing a lot of changes in the insurance landscape for new and existing homeowners.”
With an already constrained housing supply, the loss of homes in neighborhoods that were previously considered to be reasonably affordable has greatly intensified demand and pricing pressures. In this article, we’ll be going over some of the ways that these changes will present themselves to homeowners and buyers. While we cannot do as much as we would like to heal the devastation that these fires are leaving in their wake, we can help our readers prepare for the days to come, so that they may face any storm with calm and confidence.?
Let’s get started.?
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Immediate Economic Fallout
As we’ve already mentioned, the loss of thousands of homes has greatly exacerbated an already severe housing shortage. Areas like Altadena, once seen as relatively more affordable compared to other parts of Los Angeles County, were among the hardest hit.?
“Altadena, in general, is a very attractive neighborhood for buyers,” Rebecca says. “Rich in cultural diversity and adjacent to many social and entertainment experiences for individuals and families of a variety of ages. We’ve noticed a big increase in searches in this area over the past year.”
Unfortunately, with so many homes in this area destroyed, the housing inventory in surrounding markets, including Pasadena, Alhambra, and other popular neighborhoods, is shrinking as well. This is escalating the property prices even further.
This information forecasts a? significant shift in supply and demand. While this trend is currently causing inflated prices for buyers, it may also turn in the other direction in the future, as investors and property managers hurry to catch up to growing desires for local housing. It may also cause buyers to expand their search areas as they seek out their properties.?
“In the past, the demand radius in response to sudden disasters has extended more than many people expected,” says Rebecca. “People are traveling hundreds of miles to find new homes after this kind of devastation—which really brings forward how serious this situation can be. After all that trauma, sometimes these people can’t even find new homes in their own county, let alone their city.”
It’s also important to note that sometimes people don’t even want to take residence in their home city. Instead, they’re searching for places that are less prone to fires, floods, earthquakes, or whatever disaster originally affected them. While this is certainly reasonable, it does put further pressure on the housing market.?
Meanwhile, insurance companies are expected to pay out over thirty billion dollars in losses just for January alone. This brings out another source of financial strain for fire victims as they struggle to navigate the complex world of present reimbursement and future premiums.?
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Rising Insurance Costs
Even before the recent wildfires started, insurance costs in the State of California were rising. Now, the anticipated payout for wildfire victims is driving premiums even higher.?
“For insurance companies, it’s all about risk,” explains Rebecca. “Yes, insurance rates are rising in California, but they’re also going up in places like Colorado, Oregon, Washington, and other states prone to wildfires. Insurers use data trends about wildfires and other natural disasters to assess their risk models and, unfortunately, this increase in the severity and length of wildfire season doesn’t look good to them.”
Unfortunately, with global warming and other economic factors continuing to impact these kinds of natural disasters, that trend is likely to continue. Though many individuals and organizations are working to reduce their environmental impact, results take time. Until then, many homeowners are finding their insurance costs to be so prohibitive that they are becoming a focal point in home-buying negotiations.?
“Many of my clients are asking about insurance right away,” says Rebecca. “More and more neighborhoods are becoming essentially uninsurable, which forces homeowners to turn to State-sponsored insurance pools. While these options are helpful in the immediate, they can often come with higher costs over the long term—and fewer benefits.”
Because of this, many loan officers are spending extra time navigating loan agreements. If costs cannot be reduced in terms of insurance specifically, many of them are getting creative by seeking out other money-saving opportunities to balance out the final bill. This is one of the reasons that many aspiring homeowners are seeking the assistance of loan officers to help guide them through the mortgage process; with so many elevated costs to consider, it makes a significant difference having an expert on your team.?
But what about those who aren’t interested in buying a new home? Thankfully, loan officers can help them too.?
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Considerations for Reconstruction
In addition to the ongoing consequences we’ve already mentioned, another prominent challenge for many victims of the L.A. fires is rebuilding. For those who wish to keep their properties and rebuild their homes, this process can invite an entirely different slew of problems.
“Because demand is so high right now, many people are facing delays in their construction due to labor shortages and supply chain disruptions,” Rebecca explains. “There are also some new building regulations aimed at reducing the risk of future fires and fire damage.”
Those who choose to stay in a ‘wildfire zone’ will likely be required to implement more fire-resistant building materials and construction practices. This can further increase construction costs and raise rates for insurance.
“This is another situation where I highly recommend hiring a loan officer,” urges Rebecca. “If the cost of your rebuild is not going to be fully covered by your insurance, you’re going to need some additional funding. There are so many factors to consider in this kind of project and you don’t have to go through it alone.”
This brings us to our final point of the article: hope. We know this is a lot of information, but if there is one thing we’ve learned in our many years in business, it’s that you need to understand the past in order to handle the present and prepare for the future.?
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Proactive Disaster Relief Steps for Homeowners
At this point, you probably know more about the impact of natural disasters on real estate than the average person. So, let’s take it one step further; here are some actions you can take to reduce the negative impact these kinds of situations may have on your future sale or purchase:?
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Looking Forward
While the effects of the L.A. wildfires are devastating, they also highlight the opportunities we have as a community to improve our economy, housing market, disaster relief efforts, and environmental impact. Whether it’s through advocating for better policies, donating our time and money, or connecting with like-minded individuals, together we can re-shape the way that humanity recovers from these types of challenges.?
“For homeowners, buyers, and investors alike, keeping an informed and proactive perspective is essential to navigating any rapidly changing landscape,” says Rebecca. “If you’re worried about buying or selling your home in this market, you’re not alone, but there are resources that can help you.”?
As recovery efforts continue, those affected by this recent disaster must navigate a complex and evolving situation. Thankfully, with the right strategies and support, they can find stability in uncertain times.?
Everest says: We can help you achieve?your home financing goals in any environment.
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Everest Equity?
Passionately serving home buyers?and homeowners since 2004?
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