How Wildfires Will Affect Real Estate

Performance Property Real Estate Question

Q: My son just moved to the west coast. He and his wife want to buy a home out there. How are all the wildfires going to affect home prices and their ability to buy? Chauncey, Island Park, NY

A: The effect wildfires have on residential real estate will depend on specific demand for houses in the areas where the wildfires occur. When property values are high, as they are in many parts of California for example, owners tend to rebuild rather than move away after a wildfire. Homeowners in areas like this are also more likely to have an insurance policy to assist them rebuild after a wildfire. Rebuilding has become such a common process in California that there are start-ups out there that help homeowners rebuild after a wildfire.

Climate change, to which increasing numbers of wildfires are one manifestation of, the last “I” in PITI (Principal Interest Taxes Insurance) which is homeowner’s insurance is going to increase because of climate change. I studied actuarial science in college and I worked as an actuary for a property casualty insurance company after hurricane Andrew. Big natural disasters normally result in high insurance premiums. Since wildfires and other natural disasters are more frequent now with climate change, homeowners in areas susceptible to wildfires should expect to pay increasingly higher homeowner’s insurance. Thanks for your question, Chauncey.


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