Home sales in certain parts of California are beginning to fall as devastating wildfires become an annual reality in the state.
Home insurers have balked at the high cost of covering homes in wildfire-prone areas, according to the Wall Street Journal. After wildfires and brush fires ravaged parts of the state in 2017 and 2018, companies have paid out more than $24 billion to those whose homes were damaged in the fires.
Now, some insurers are declining to renew policies for tens of thousands of homes in those areas. Thousands more are expected to either increase their rates or decline coverage in coming years.
While the numbers for total damage costs in 2019 are still being calculated, analysts estimated reconstruction costs for the wildfires in September and October to be over $80 billion.
The parts of California most affected by autumn wildfires are usually rural. While many people priced out of cities like Los Angeles and San Diego have previously turned to these parts in their search of cheaper homes, the high price of fire coverage could make that impossible for many, Deputy Chief Economist of the California Association of Realtors Jordan Levine told the Journal.
“It really exacerbates an already challenging environment,” Levine said. “Putting an even higher bar on the financial requirements of homeownership means that some folks are going to get priced out.”
Last year, CAR ran a survey asking members if insurance was a setback in the homebuying process and 34 percent of members responded that they’ve had buyers pull out of a deal due to not being able to find adequate fire insurance.
Thousands had to evacuate their California homes in September and October.
Lauralee Green, an agent and co-owner of Z Group Real Estate in Pollock Pines, California, told the Journal she now asks prospective buyers to submit an insurance quote before making an offer. She says her total annual home sales are down to $4.7 million from $8.8 million because many pull away from the deal after seeing the total.
“We’re just going to get a bunch of houses sitting on the market that won’t sell,” she said.
Currently, the state is trying to figure out how to best address the rising risk of wildfire damage — in December, it passed a ruling that protects more than a million houses across the state by banning insurance companies from declining insurance for one year after a wildfire.
But those who are looking to buy a home now may have a serious fire insurance-related challenge on their hands. Insurance companies are increasingly declining to cover certain areas for fire damage and, as a result, leaving homeowners to turn to the state insurer’s California FAIR Plan instead — a policy that can be more expensive, only protects up to $1.5 million in damages and doesn’t include liability and theft.
Michael Angles, a California resident looking to sell his mother’s home in Placerville, told the Journal that insurance costs have already gone up from $3,000 in 2018 to $3,800 in 2019 while the last renewal quote he received was $19,000. Angles, like many in the area, has decided to wait in hope of the situation improving to sell the house.
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