Will San Diego Wildfires Affect Real Estate?

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Will the San Diego wildfires affect San Diego real estate? The answer to this question is yes, but not nearly as much as you might think. Today we will examine a few distinct aspects of the situation and how they will affect the whole:

What is happening right now?

Let's start with people who are currently buying. Right now, there are people in escrow who are having trouble closing on their house for a few reasons. If they are in an area affected by the fire or nearby a fire, many lenders are not funding loans until the fires are a safe distance away or completely contained.

Another issue involved with closing deals right now is insurance and home warranties. Some home warranty companies are not issuing warranties on homes anywhere near the affected fire areas. Insurance companies are also being cautious about homeowner's policies.

There is also a short-term effect on buyer confidence, most notably in nearby areas (Rancho Bernardo Real Estate). We had a client looking in Rancho Santa Fe who called us this week, and requested to postpone their home search for now. So a few scared buyers are dropping out of escrow or postponing their home searches.

What will happen in the near-term?

One of the main issues we have is a number of San Diego home owners who will need temporary housing. With a low rental vacancy rate already going on, it is going to be very tough to find a home to rent. In addition, insurance companies are giving homeowners a monthly allowance for renting, making them less discriminating about saving money on their rental. All this will cause a spike in rental rates on top of the rates that have been steadily on the rise for over 5 years.

As of October 28, most estimates of homes lost in San Diego County are at over 1,600 homes. The inventory of San Diego homes for sale will not decline much. The number of homes lost comprises less than 0.5% of the total homes in our county; thus, such a small amount of inventory burnt should not affect the overall sales market. It is possible that a small percentage of investor's homes currently for sale may turn into short-term rentals in order to take advantage of the tight rental market, in lieu of a strong market to sell in.

In the 3-6 month range, we will also see a lot of construction, which will seriously limit the availability of skilled professionals, contractors and even unskilled labor. With all the construction going on, this may help boost our economy a small bit, which always helps the local housing market by increasing the pool of available buyers.

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Taking a step back: The history of wildfires in San Diego

To really predict the future effect of this event, we must first examine historical models. Many people are beginning to realize - if they didn't know already - that wildfires have always been a regular occurrence in the county.

Most recently, we had the Cedar Fires in 2003, as well as fires in 1996, and they've been regularly occurring for as long as scientists can tell, even beyond modern records. The frequency and size of these fires are not changing much, although a small trend is that the fires are a little more regular, but smaller in scope. The real difference is that we are now populating the areas of East County where these fires have, in the past, had little effect on our general population.

What will happen in the long-term?

Neither of the last big fires seems to have affected the market trajectory, nor do I believe these fires will have a serious impact or change in our market today.