Natural disasters are threatening to have a devastating effect on the housing market.
Every year brings bigger and more dire threats to communities across the country. Only so much can be done to protect your home against never-before-seen forces of nature.
When you come up against one of these acts of God, you can only hope your insurance will cover your losses.
That's why homeowners in California are suddenly very afraid of the future. Last year's tragic Camp and Woolsey wildfires burned almost 2 million acres of land. Those who own property in California are left wondering what effect these fires will have on the real estate market.
As an insurance provider or adjuster, you need to make sure you're helping your California clients in their time of need. That's why you need to consider all the factors the California wildfires will have on the value of Cali homes.
The California wildfires destroyed entire towns and homes, adding to an already existing housing shortage. Learn more about the effects of wildfires here.
Wildfires Affect Area's Property Value
One fluke fire in a neighborhood will not affect the value of the whole block. However, continual wildfires threatening homes will cause things to change. You need to consider whether these homes or land will now have more value or less.
There's nothing more tragic than losing a home or a loved one's life in a fire. Picking up the pieces from one of these disasters can take a while. People need to get back on their feet quickly, but things change fast after a disaster.
Those affected need to quickly find a new home or restore the one they've lost. Deciding how much a property was worth will be based on its previous insurance assessment. In the future, those assessments will all have to be reconsidered.
Consider now some ways property values will rise or fall in a wildfire-prone area of California.
With Fewer Houses, Prices Will Rise
Thousands of families were left displaced from the tragic wildfires in 2018. If it is impossible to return to the ruins of their homes, they desperately need housing.
This means that the real estate market will rise in many areas. A shortage in any supply means huge gains for whatever is available. This can't be more relevant to families needing homes.
This factor may cause current homeowners to have their insurance policies readjusted. Now that their homes have more value, they'll need more coverage. In a more dire way of thinking, they also need to be covered in case their house is next to go.
Rebuilding Will Be Difficult
Many of the people who evacuate will want to return to their homes, no matter what condition they're in. Even if their property is now just a pile of ash, they will want to make it their home again. However, rebuilding will prove to be very difficult for many families.
The demand for housing has already raised local insurance rates considerably. That means the payout they receive for their initial home won't cover the new, higher demands.
Another factor in increased rebuilding costs will be the inevitable rise in building code certification. Lawmakers will be pressured to do something to help their communities. That something could very well be strict and expensive fire code parameters.
After this tragedy, people may find that they've now been priced out of their old neighborhood.
Many People Could Also Decide To Leave The State
High property prices, skyrocketing insurance, and impossible construction standards sound very daunting. In the end, many people may just choose to move out of the state altogether.
Even those unaffected by fires might want to leave based on fear their community could be next. Though this thinking is understandable, it may not be rational in the long run.
Every area of the country faces its own challenges. There are tornadoes in the Midwest, hurricanes down south, and the Northeast is plagued with blizzards.
Though if too many migrate east, then this could help bring housing costs back to more reasonable numbers. However, California is one of the most beautiful states in the country. It will always be relatively expensive to live here.
But those brave enough to stay and enjoy its beauty could find deals in the future.
Are Wildfires The “New Normal” in California?
This is the most important question to ask when assessing the value of California properties. Has the state simply had bad luck over the past few years? Or can Californians expect to face wildfire disasters yearly?
One major change is the rethinking of wildfire season. It used to just be the hotter Summer months but has now become a year-long threat. Whether it's the result of the recent drought or global warming, there is no longer a particular fire season.
Now it's always fire season in California.
But many of these fires can't be blamed on nature entirely. Human error, or worse, human malfeasance has been the catalyst of many recent fires. As you know, the start of a fire does play into the value of an insurance claim.
However, the size and spread of these fires are what has changed drastically in the past few years. This means insurance rates need to change because risks factors have.
Effects of Wildfires Will Show in the Real Estate Market
It's only a matter of how much worse it will get. Keep the effects of wildfires in mind when assessing insurance rates on Californian homes.
People who lose their homes will be in need of fair insurance returns. For other ways to help those who have lost their homes in fires, contact us.