What are some impacts that the Southern California Wildfires will have on housing in the region?
Question of the week: What are some impacts that the Southern California Wildfires will have on housing in the region?
Answer: Taken singularly either the Palisades or Eaton fires would be historic in scope of damage to natural habitats and structures lost.
The Palisades fire as of this morning has burned over 20,000 acres, for perspective the city of San Francisco is approximately 30,000 acres. The Eaton fire covers 14,000 acres, or almost the size of Manhattan Island in New York City.
Almost 180,000 people have put under mandatory evacuation orders so far. This is the equivalent of evacuating the entire city of Ontario (California not Canada).
The fires in the Southland have destroyed more than 10,000 structures. Most of the structures are homes and apartments, displacing tens of thousands of people.
The current damage estimate is over twenty-five billion dollars, with estimated economic impact exceeding $50 billion.
The impact of these fires will be felt throughout the region for a long time.
One impact that immediately comes to mind is property insurance. As is well known, the insurance situation in California has been untenable for many years (essentially since voters decided to have an elected insurance commissioner). Major carriers have pulled back, or out of, coverage in the state, forcing many property owners to get coverage under the California FAIR Plan or ‘non-admitted” carriers who are not backed by California Insurance Guarantee Association (CIGA), which acts like the FDIC does for bank accounts but for insurance policies backing up to $500,000 in claims should an insurer declares bankruptcy or depletes its reserves.
With tens of billions of potential claims being paid due to the wildfires, and not counting any claims from future events this year, what will be the response to insurance companies in a market already inadequately covered due to past claims in high risk areas and inability to have increase premiums sufficient to the risk and costs approved by the commissioner’s office.
Anticipate more non-renewals and fewer new policies issued in the state, further burdening the California Fair Plan. In March the California Department of Insurance warned that a major disaster could make the FAIR Plan insolvent. If the FAIR Plan has insufficient funds to cover claims other insurers must step in to cover the gap based on their share of the market. Very important to note, insurers can pass the costs onto their customers.
Per the Wall Street Journal, the estimated coverage by the FAIR Plan in Pacific Palisades is $5.9 billion; per the article the Fair Plan has approximately $700 million cash on hand to pay claims.
Look for your insurance premiums to increase.
With thousands of families, perhaps tens of thousands, being displaced there will be a significant increase in demand for housing, rental and homeownership. Combined with the elimination of thousands of homes and apartment units reducing supply, the region will likely see an increase in rents and home prices.
Higher costs for home improvements and remodels. Wood, glass, drywall, cement, flooring, plumbing, electrical, counters, cabinets, roofing material, appliances, garage doors, look around your home and office and imagine one thousand structures needing all the same material in then next few years. Demand for home building supplies during Covid as home remodels surged straining supply lines and pushing costs higher and delivery times longer. Expect the same to occur starting later in the year and to continue for quite a while.
If you are considering a remodel, you may want to get your plans into city or county planning offices before the flood of plans being submitted for fire damaged properties. As well, even if plans are not approved, consideration may be given to purchasing appliances, sinks, etc that are part of your plans and put in storage. The storage costs may be lower in the end than higher costs for those items if you wait.
Finally, the airborne smoke and ash from the fires are considerably more toxic than from traditional forest fires. Forest fires have organic matter in their airborne detritus. Due to the amount of metal, plastic, rubber, etc that has been burned with all the buildings and structures, the airborne smoke and particulates are toxic and can, will, cause long-term respiratory issues for many.
There are two impacts that I am hopeful will result from the catastrophic fires we are experiencing.
First, that governing agencies will engage in forestry management, including, but not limited to, systematic and consistent controlled burns and the removal of underbrush, dead wood and other fire enhancers throughout wilderness and forested areas.
Second, that the funds from Proposition 1, passed by voters in 2014, will go beyond allocation and become funding for their purpose of building water capture and storage systems throughout the state. Approximately $6.4 billion was available for spending but less than one-third has so far been spent. Keep in mind the allocation of funds from a decade ago will likely not go nearly as far as intended due to increase costs over the past decade while projects sat waiting for approvals, permits and other bureaucratic “necessities.”
Schedule an appointment to discuss your options if you are considering purchasing a new home or property or refinancing an existing one and want to know the mortgage options available to you.
Have a question? Ask me!
Extremely strong finish. This may be too light of an emphasis on the data released today by the Department of Labor for December’s job market. Expectations from Wall Street were that the economy would add 155,000 jobs last month. That was off by more than 100% as 256,000 jobs were added. As well, the unemployment rate was expected to remain the same, at 4.2%, but dropped to 4.1%; despite 243,000 new job seekers in the market. The news was extremely not mortgage rate friendly.
The entirety of the report had one small glimmer that could be seen as rate friendly, the average wage increased 0.3% for the month, slightly lower than November’s 0.4% wage increase. December’s data concluded a year in which 2.2 million jobs were added in 2024, two times the estimates made for the year at the end of 2023. For the 75% of job creation occurred in three sectors: healthcare, leisure and hospitality, and government.
Reactions were fast and big to the data as stocks dropped in prices and bond rates climbed as investors see the strong job market as pushing the Federal Reserve off any cut to its benchmark rate later this month, and increasingly unlikely to cut at it following meeting in March.
Rates for Friday January 10, 2025: Rates have been climbing since the start of the year, higher the first Friday of the month/year than the last Friday of 2024, and higher again today. Rates are at their highest since the first week of July, and up 1.25% since they hit their most recent low at the end of September.
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS FOR PURCHASE TRANSACTIONS:
30-year conforming 6.875% Up 0.125%
30-year high-balance conforming 7.00% Up 0.125%
Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down with 740 FICO score for purchase mortgages.
Southern California is immense, Los Angeles County is larger than the combined area of Delaware and Rhode Island. Population wise, the County would rank 11th most populated state, between Michigan and New Jersey.
Despite the size, it seems everyone I have spoken to in the last few days has family and/or friends who have been evacuated from, or lost, their homes due to the fires.
In this space of the WR&MU over the years I have included a link to the donation page for disaster relief for the American Red Cross for disasters in other parts of our nation. Today I include the link hoping you will donate some amount, not donation is too small, to enable the Red Cross to assist our families, friends, neighbors, fellow Southern Californians, with food, water, shelter and comfort.
Thank you for clicking here to make your donation.
Have a great week,
Dennis
