The California wildfires (at least 17 burning across the state) have burned tens of thousands of acres and destroyed a few hundred homes and buildings. Thousands of residential real estate homes across the California housing market with a total worth around $535 million (according to CoreLogic) are at risk of destruction. Thousands are without power and hundreds of thousands have evacuated their homes already. With the lack of affordable California real estate already a growing crisis with no solution in sight, what do the latest wildfires mean for the housing market forecast?
How Wildfires Affect the California Housing Market
At the moment, real estate sales have come to a halt. Natural disasters, in general, have a large impact on the state of housing during and after they occur. Aside from destroying homes and displacing the population, property prices and values are drastically affected as well.
Typically, house prices drop significantly in the areas affected by wildfires. In fact, property owners in the areas hit by natural disasters will continue to sell their properties at a discount (10-25% according to real estate appraiser Orell Anderson of Strategic Property Analytics) for the few years that follow. The areas simply become less desirable to buyers, especially areas that have been hit multiple times in recent years like Sonoma County. This is in part due to insurance rates shooting up, doubling or tripling in some areas. With sharp drops in home sales, property sellers are forced to cut prices even more as days on market continually rises.
Not only do natural disasters like the California wildfires have a psychological effect that discourages real estate activity in the areas, but the locations can remain dangerous, becoming susceptible to landslides during rainfall. The combination means a drop in real estate values.
At the same time, housing markets that aren’t hit repeatedly may see an increase in investor activity. Real estate investors looking for discounted homes and distressed properties start to sweep up real estate deals and work to fix and flip homes in these areas as most markets recover a few years after with an increase in prices.
Surrounding areas that are in safer zones tend to see a sharp rise in house prices as people flood into them, sometimes unable to return to the affected areas. In California where there is already a housing supply shortage, a growing displaced population may not find the necessary supply to meet their needs if the homes currently at risk are destroyed or become uninhabitable. This will inevitably push up the already-high home prices and rent prices as well. Mashvisor’s data shows that the median property price for the California real estate market is $713,991 with the average rental price at $2,680 for long-term rentals. According to Anderson, prices can see a boost of 5-10%. In the past, he says that natural disasters have even caused a rise of 50% in some cases.
Airbnb’s Open Homes Program Offering Free Housing
Local Airbnb hosts are coming together through the homesharing platform’s Open Homes Progam to offer displaced residents a place to stay for free through November 7th. Airbnb hosts are encouraged to list their rentals for $0 and welcome evacuees from affected areas.
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