Impact on California Real Estate after the Wildfires

Firefighters continue to battle the 22 large wildfires that continue to burn through seven counties in California, including the famed wine-producing areas of Napa and Sonoma.  About 3,500 homes and buildings have been incinerated by the blazes, which have ravaged about 170,000 acres, mostly in Northern California. (That’s larger than the island of Manhattan.) The causes of the fires have not yet been established.

The wildfires in California.Long after the flames are extinguished the region will continue to suffer.  The disaster is expected to ravage the housing markets of this highly prosperous region, with slashed prices, scarce availability, and wrecked infrastructure—all factors that will need to be taken into account as displaced homeowners decide whether to return and rebuild or leave the area for good.

It’s likely to take up to a decade to rebuild the homes, businesses, and essential services such as schools residents will need should they choose to return.

The median home price in Napa County was a whopping $876,200 on Sept. 1, according to realtor.com® data. In neighboring Sonoma County, the median home price was $750,000. But that was before the fires.

More than 172,000 homes are now at risk of going up in flames in the Napa and Santa Rosa metropolitan areas, which are usually not prone to wildfires, according to an analysis from CoreLogic. (Napa is the name of a town as well as of the surrounding county.) It will cost an estimated $65 billion or more to rebuild them.

“Multiple neighborhoods are burnt out,” says Randall Bell, CEO of the national real estate appraisal firm Landmark Research Group, based in Laguna Beach, CA, which has assessed areas damaged by wildfires. “It’s street upon street of just charred-to-the-ground moonscape. All you see are chimneys and foundations. It’s a sad sight—and you see hundreds of them.”

It’s not only someone’s home that is lost in a situation like this, it’s an entire community.  The fires burn stores, restaurants, the churches, the schools. They burn everything. You may rebuild a house, but where’s your infrastructure?

Homeowners worry that even with insurance premiums may not get enough money to rebuild their entire homes to what they were before.  That’s because the price of construction is likely to skyrocket with the extra demand for construction workers, for which there is currently a national shortage compounded by Hurricanes Harvey and Irma and building materials. Some will get loans; others will tap into their savings.

And for those who decide to stay and rebuild, it will be a lengthy process.  The area is expected to recover only about 10% to 15% each year.  It could take up to 10 years for the local infrastructure to be back to normal.  Plus, they’ll have to find a place to live while they rebuild—which won’t be an easy feat.

There was a housing crisis before the fire with a vacancy rate of about 1%, now with the loss of approximately 3,500 homes, there literally is no place for people to stay.

And for homeowners who want to sell their home, they should expect to take a loss of 10% to 35%.  No one wants to live near burnt-out houses or with fewer services and businesses nearby. Sellers should expect an army of investors, a combination of home flippers and landlords, to swoop in.

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