How will the California wildfires shift the real estate market?
How and will the California wildfires shift the market?
It may not particularly be the best time to buy into residential homes or neighborhoods with good and trustworthy insurance policies but it can be a great time to sell. Owners of properties, especially those who were already considering selling, may want to jump on this opportunity to sell completely over the standard asking price. Prices of residential homes and commercial buildings at median level are said to increase by 6% to 10% due to the fires.
Although labor may be costly due to the limited amount of laborers in correlation to the number damaged, we must also remember the shortage of structure inventory. The immense upward shift in asking prices for standing homes will allow property owners to gain an extensive amount of capital growth. In the next few years, the burned areas will be completely new and upgraded and median level buildings standing today will not be able to compete with new spaces. The value will most likely drop below their original asking prices.
One may be asking how this upward shift in real estate is so drastic when many people and investors just lost so much real estate and belongings. But here is why:
Although labor may be costly due to the limited amount of laborers in correlation to the number damaged, we must also remember the shortage of structure inventory. The immense upward shift in asking prices for standing homes will allow property owners to gain an extensive amount of capital growth. In the next few years, the burned areas will be completely new and upgraded and median level buildings standing today will not be able to compete with new spaces. The value will most likely drop below their original asking prices.
One may be asking how this upward shift in real estate is so drastic when many people and investors just lost so much real estate and belongings. But here is why:
Just two months after the deadliest wildfires in California's history, hundreds of miles to the north in the wine country of Sonoma and Napa counties, the state finds itself fighting a growing and dangerous conflagration again.
As of Friday morning, six wildfires in Southern California had torched 141,000 acres, 212,000 people had been evacuated, and hundreds of buildings had been damaged and destroyed, according to the most recent information from the California Department of Forestry and Fire Protection, or Cal Fire. Several people have been injured, but no casualties have been reported so far. The state has issued its highest fire alert.
More than 86,000 homes in Ventura and Los Angeles counties are at risk of damage from this latest round of fires, according to real estate data firm CoreLogic. That could cost $27.7 billion to rebuild. And these figures don't include the more recent blazes that broke out in San Diego to the south and Riverside County, east of L.A.
Compounding the tragedy is that these are already tight housing markets. That could get worse as more displaced renters and homeowners compete for whatever unharmed abodes are available as they rebuild.
It could "exacerbate an already challenging market for buyers," says Chief Economist Danielle Hale of realtor.com®. "People will probably look more toward apartments." But there aren't enough affordably priced rentals to go around either.
In all of California, nearly 2,045,000 homes are deemed at high or extreme risk from wildfires, according to the 2017 Verisk Wildfire Risk Analysis. That's 15% of the state's households, according to the insurance, natural resources, and financial services data analytics company based in Jersey City, NJ.
Lessons learned from October's deadly fires
Usually after a major disaster, real estate prices drop. Buyers don't want to look out their windows to see the burnt-out remains of their neighbors' homes. Whole neighborhoods can become loud and messy construction zones as residents rebuild their beloved communities. And of course, there are always fears that another disaster could strike.
The October fires in Northern California killed 44 people, damaged more than 21,000 homes and 2,800 businesses, and cost more than $9.4 billion in insurance claims as of Dec. 1, according to the California Department of Insurance. About 100,000 residents were forced to flee their homes.
But instead of prices going down, they actually shot up in Sonoma and Napa counties after the tragic wildfires.
Median prices of single-family houses rose 6.1% in Sonoma and 7.5% in Napa from September to November, according to real estate brokerage Pacific Union.
In Santa Rosa, the Sonoma County city that was devastated by the fires, median home prices have risen about 9%, says real estate agent Daphne Peterson of Keller Williams Realty. They typically fall this time of year as the market slows down ahead of the holidays.
So what's going on? Despite the destruction, this is still an incredibly desirable area to be—so much so that folks are willing to take the risk. Many of the residents who lost their homes still want to remain in the area, and will pay whatever is necessary to do so.
That's why in these sorts of anomalous places, prices can rise as a result of the disaster, says Orell Anderson, a national real estate appraiser with Strategic Property Analytics in Laguna Beach, CA.
The fact that there weren't enough homes on the market before the crisis only exacerbates the situation.
Undamaged homes are now receiving multiple offers and going as high as $100,000 to $200,000 above asking, says Rick Laws, regional vice president of Sonoma County for Pacific Union. And many buyers in the wealthy area, whose high-end homes were damaged in the flames, have the means to pay all cash.
"The majority of people here are saying, 'This is my home, this is my neighborhood, this is my community,'" says Laws of locals who want to stick around as they fix up their homes.
"We’re going to rebuild and we’re going to make our community and our homes nicer than they were,” these locals say, according to Laws.
How natural disasters usually affect local real estate.
That kind of topsy-turvy postdisaster price appreciation may not occur in Los Angeles and the other counties affected by these latest infernos. After most natural disasters, homeowners can expect to absorb a roughly 10% discount if they put their properties on the market, says real estate appraiser Anderson.
That's because people buy neighborhoods as well as homes. So properties that were miraculously spared on burnt-out blocks are going to see the biggest discounts. (Buyers are unlikely to want daily reminders of the devastation.)
Los Angeles has some of the nation's most expensive real estate, but the city is very different from the wine counties up north—vastly larger, more diverse, and perhaps less predictable. And it isn't yet known which areas will be damaged.
Generally, most people after a disaster are risk-averse, and yet most will rebuild, Anderson says.
If a rebuilt home is later sold, it typically does so for about 5% to 10% less than the previous price. But that discount fades over time, and by five years or so, it disappears.
Rebuilding is likely to cost a pretty penny after the Los Angeles fires, as the demand for construction workers and materials, already tight in the region after the last round, will soar due to the demand.
Homeowners whose homes were burnt also have to contend with insurance companies paying out only home repairs. They typically don't compensate policy holders for the value of the land, which in some parts of California can total about half of the property's value—if not more.
And even those unaffected by the fire may not be fully safe—they need to be on guard against landslides, Anderson says. Many of the trees and plants incinerated in the blaze were anchoring the land on hillsides. Without those stabilizing roots, land could be more vulnerable during a big rainstorm.
"Natural disasters on this scale can put a thumb on the scale psychologically against people relocating to California," says Patrick Carlisle, chief market analyst at the Paragon Real Estate Group in San Francisco. "However, unless the fires continue, people’s memories are relatively short."
But it could induce some folks whose homes were destroyed or those already considering a move, like retirees, to leave, he says.
DISCLAIMER: This blog/article has been curated from an alternate source and is designed for informational purposes to highlight the commercial real estate market. It solely represents the opinion of the specific blogger/author and does not necessarily represent the opinion of Pacific Coast Commercial.
All content provided on this blog is for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner of will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information.
Keywords: San Diego Commercial Real Estate For Sale, Commercial Property In San Diego, Commercial Real Estate In San Diego, San Diego Investment Real Estate, Commercial Property Management In San Diego, San Diego Commercial Property Management, Commercial Property Management San Diego, Managed Commercial Property San Diego, Commercial Property For Sale San Diego, San Diego Commercial Real Estate Leasing, Top Real Estate Agents in San Diego, Commercial Property in San Diego, Property Management Company San Diego, Real Estate Agent in San Diego
Comments
Post a Comment