My writer and his family were startled awake by a storm that carried much more power than expected last week. They live in Asheville, NC, one of the hardest-hit areas by Hurricane Helene. Though he and his home escaped any major damage, his entire neighborhood was filled with downed trees, smashed roofs, and other destruction.
Here in California, we deal with the effects of wildfires in many of our communities and live amid the fear of “the big one” hitting a major fault and triggering a massive earthquake. Beyond all the loss of life and property that results from these disasters, the real estate market can take a big hit. Here’s some info on how those markets are affected, paraphrased from this real estate blog:
There is typically a sharp decline in property values immediately after a natural disaster. Homes can suffer serious damage and be in need of repair. Those repair costs, plus a perceived increased risk of future disasters, diminishes appeal and demand. If many in the area were underinsured or uninsured, there could be financial difficulties that lead to foreclosures and an even longer-term depressive effect on market prices.
Of course, investors might see a place hit by disaster as a strong bet for long-term recovery and appreciation and could swoop in and purchase properties at low prices. This can provide much-needed capital for rebuilding efforts but also lead to gentrification and displacement of residents who are now priced out of their communities.
In the long term, markets tend to adapt to the reality of natural disasters, including new building codes and zoning laws to mitigate future risk (think, elevating homes in flood-prone areas or enforcing stricter fire-resistant materials in wildfire zones). That can lead to increased building costs likely passed on to buyers and raising overall market values.
Finally, how quickly and competently the government responds to a natural disaster has a huge influence on the market’s trajectory. Timely and robust support can help stabilize markets and reassure potential buyers, but the opposite response can exacerbate the negative impacts on property values and investor confidence. If the variables align positively, a destroyed market can bounce back, sometimes even stronger.
One other issue the housing market in California is currently facing is the lack of insurance companies willing to insure new homeowners. Insurance has now become a contingency in the contracts because if you can’t get insurance, you can’t close on a loan. Rossmoor, our senior community, currently has a fire insurance coverage issue and can’t find lenders that will finance the homes in that community, thus they are all-cash closings.
I have referred a handful of clients to a current lender that seems to get buyers insured. However, my most recent closing he could not and they found only one company (Mercury) that would insure in Brentwood. I think they have quotas for specific areas and this problem was not helped by California putting limits on how much an insurance company can charge. It is this point that has caused so many insurance companies to leave California and I am unsure what the solution is.
Understanding all of these possibilities and variables can help buyers and sellers make informed decisions. There is no foolproof way to insulate a market from the effects of a natural disaster, but being diligent about preparedness, recovery effort, and strategic planning can pave the way for growth later. On a side note, I just saw an article about one home that did not burn in the Lahania fires while everything else burned around it. It was a newer build and had some fire hardening; maybe a wave of future possibility?
