Photo via Unsplash
Home Buyer
How Summertime Wildfires Have Impacted Real Estate In California

Another California summer has come and gone with an unfortunately familiar story: wildfires. This is their impact on real estate in California.

Written by Will Caldwell at SnapNHD

Another California summer has come and gone with an unfortunately familiar story: wildfires. Above-average temperatures, strong winds and other factors have caused the wildfire hazard to persist well into October.

As of mid-October, over 4.1 million acres of California had been burned by wildfires. The damage totals also include over 30 fatalities and 9,200 lost structures. Six of the 20 largest and most destructive wildfires in the state’s history have taken place in 2020, as well as two of the deadliest.

While a property’s risk for wildfires is included in the Natural Hazard Disclosure during a real estate transaction, there is no denying that the repeated cycle of wildfires is having a significant impact on local real estate and buyers’ purchasing decisions.

Lost Properties, Declining Value

When a neighborhood is lost to wildfire, the rebuilding process can take longer than expected. Some insurance companies are unwilling to pay to rebuild a property in an area that has been shown to have repeated fire risk. Alternatively, the homeowners themselves sometimes feel that it simply isn’t worth rebuilding after losing their property to a fire.

Some people are finding that the constant threat from wildfires is too much to deal with, and are moving out of the state entirely, even if their property has not yet been affected. However, the presence of fire-related hazards on the properties’ SnapNHD reports can make this a tough sell for potential homebuyers.

As a result, even though the state’s real estate market as a whole is supply-constrained, many homeowners in these high-risk areas end up selling their properties for much lower values than expected.

A big part of the decline in demand for fire-stricken areas stems from ever-increasing fire insurance premiums. Insurance rates are directly tied to the risk assessment for an area (including recent history and Natural Hazard Disclosure information), as well as losses in the vicinity.

To counteract their own financial risk, insurers often require homeowners to take additional mitigation measures beyond what the state typically recommends. This, combined with insurance rates exceeding several thousand dollars per year, is proving enough to deter many potential buyers from the area.

Ripple Effect In Other Areas

Despite these drastic outcomes, the overall impact on California’s real estate is more mixed. In an interview with Forbes, Redfin chief economist Daryl Fairweather notes, “With home buyers and sellers in fire-prone parts of California really starting to feel how environmental risk factors are impacting both the safety and value of their homes, long-term demand will change, though California overall is unlikely to lose its luster.”

Continues Fairweather, “Demand and prices for homes in fire-prone areas will go down, but as a result they’ll increase in safer parts of the state. California is in the midst of a housing shortage, and the state should take wildfire risk into account when deciding where to focus its building efforts.”

One can expect homebuyers to pay closer attention to whether a property’s Natural Hazard Disclosure includes one of the state’s two fire-related designations: very high fire hazard severity zones and wildfire hazard zones. With wildfires becoming a more commonplace part of life in California, this could easily become a “make or break” part of future home sales.

Of course, increased demand for properties in areas with minimal fire risk will further increase prices and competition in other areas, especially with an already-limited supply. While this could present some significant opportunities for sellers in these areas, buyers may find their budgets stretched even further.

The Importance of Mitigating Wildfire Risk

Should you choose to buy a property where the NHD report indicates a significant fire hazard, you must take added precautions and create a defensible space around your home.

Your defensible space is made up of two zones that extend at least 100 feet away from the structure. The first zone, which extends 30 to 50 feet, should minimize vegetation and combustible materials. For example, homeowners should use stone landscaping, remove pine needles, and trim back any tree branches that hang over the roof.

While more vegetation is allowed in the secondary zone, shrubs and trees should be spaced far from each other and separated by noncombustible materials (such as a gravel walkway). Choose drought-resistant plants and shorter shrubs that are less likely to create vertical fire spread. Low branches should be removed from mature trees.

Your insurance company may have even more stringent requirements in place for creating a fire-safe zone around your home. Such efforts can require a lot of work and money — another important consideration when going over the results of your NHD report.

Rely On the NHD Report When Buying a Home

For potential homebuyers, concerns over wildfire risks can cause you to seriously reconsider buying a home. However, you will only be able to make an informed decision when you order and closely examine a property’s SnapNHD report.

By understanding whether a property lies within a very high fire hazard severity zone or a wildfire hazard zone, you can better evaluate your potential risks when buying a home in California. Taking mitigation efforts now — or choosing to purchase in a different location — could protect your family and your finances in the future.