California Wildfires Do Impact Home Values

The California wildfires do have an impact on home values. A new report from Redfin looks home values three years following a wild fire. It found that in areas directly hit by a fire, home values increased 21%, but in areas outside of the fire zone, housing prices increased 33% during the same period.

Decreased demand in fire-ravaged markets is putting downward pressure on home value appreciation. In the three years following the fires, home purchases decreased 38% in markets directly hit by a fire. In adjacent markets, meaning those that were near a fire, home purchases decreased 3%. The impact was the most significant in the year following the fires, when sales activity fell 43%. Concern decreased steadily each year after the fire, and by the third year, sales were down only 29%.

While consumers are cautious about buying a home in high-fire areas, investors and builders have rushed into those markets. Fire-afflicted markets had a 17% increase in all-cash purchases, and in areas unaffected by wildfires. All-cash transactions decreased by 5% in the same period. According to Christopher Anderson, a Redfin real estate agent, the trend is the most prominent in Napa, CA. Following a fire, investors show up immediately and the city expedites permits for re-building projects.

Builders aren’t only repairing existing building, but they are also building new product. After the fires, new home construction increased 595% on average during the three years after the fires. Outside of fire-affected areas, new home building rose only 6%. This trend shows that builders and other capital sources believe than demand will return to those area.

While appreciation of home values may slow down, rents actually rise rapidly. CoreLogic deputy chief economist Selma Hepp took an in-depth look at how the largest fires in the state impact rents and housing costs. She found that the fires often create new demand for rental housing—due to property loss—often leading to increased rents. Hepp analyzed the impacts of specific fires over time, including the The North Complex, the Glass Fire, and The Dixie Fire, and found rent appreciation was common but also dependent on the extent of property damage.