California properties located near wildfire-prone areas have experienced much slower appreciation compared to other regions. The state is currently facing a significant home insurance crisis, with numerous companies either withdrawing from the market or reducing coverage in areas susceptible to wildfires.
In May 2023, major insurers State Farm and Allstate announced they would no longer accept new applications for homeowner insurance in California.
This move followed AIG’s exit from the California market earlier in the year.
Additionally, several other insurance carriers have stopped issuing policies for homes in specific regions of the state. Consequently, home insurance rates are on the rise as the availability of coverage options dwindles.
New Construction Trends in California Across Different Fire Hazard Zones
The California State Fire Marshal classifies land into three Fire Hazard Severity Zones (FHSZ): Moderate, High, and Very High. Combining FHSZ data with CoreLogic’s data on new construction provides valuable insights into the risks associated with newly built homes in the state.
Over the past 15 years, the share of homes built in the Very High FHSZ has declined, likely due to the implementation of the California Building Code on January 1, 2008. Building wildfire-resistant homes in California can add between $2,800 and $27,100 to construction costs, as reported by Wildfire Today. These costs, along with rising homeowner insurance premiums, increase the financial burden of buying a home in California.
Conversely, the share of new homes constructed in the Moderate FHSZ has nearly doubled since 2008. However, building in Moderate FHSZs does not entirely eliminate wildfire risks.
In 2020, the LNU Lightning Complex fires, one of the largest in California’s history, devastated Northern California’s Wine Country.
Following the Great Recession, home prices in California rose steadily, averaging an annual appreciation of 9.4%. However, the pandemic triggered a significant price spike due to factors like social distancing measures, remote work options, and out-migration from large metropolitan areas.+
How California’s Largest Wildfires Affected Home Price Changes
To assess the impact of wildfires on property values in California, CoreLogic examined the five largest fires in the state’s history, all of which occurred in 2020 and affected a total of 19 counties. The study focused on property value changes one year after these disasters.
Initially, it was assumed that all damage would be repaired within a year, and the fair value of the property, as measured by CoreLogic’s Total Home Valuex AVM, would remain unaffected by the damage. To test this, price changes between June 2021 and May 2023 were compared for properties within the fire perimeters and those outside the fire perimeters in all 19 affected counties.
Price of properties within a fire perimeter declined by 0.64%. In contrast, properties within one mile of the fire perimeter saw a price appreciation of 5.1%, and those one to five miles away experienced a 7.21% gain. During the same period, the average price appreciation for California was 12.3%. These findings indicate that buyers considered the history of wildfires, which influenced housing price trends.
As California’s population grows and residential development expands into higher wildfire hazard areas, more properties are exposed to wildfire risks. Proactively addressing this challenge and its effects on the housing market is crucial to fostering a healthy and resilient housing ecosystem for homeowners, lenders, insurers, and policymakers.
I’m Tanner Murphy, a retired real estate agent from California, now writing for propertyescape.net. I simplify California’s complex real estate laws for readers, making it easier to understand and navigate the market.
