Rogers Healy: California homeownership dream may soon become a nightmare – Here's why

For the first time in history, the proximity to the beach, to Hollywood and to mountains will be trumped by living in middle America

“All the leaves are brown, and the sky is gray”… Maybe that’s a better option for home buyers these days? The California homeownership dream may soon be becoming a nightmare, due to all the obstacles with wildfires.

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The tragic wildfires in California are beginning to have a lasting impact on the housing market on the West Coast.

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It is no surprise that people are becoming more and more hesitant to move to a wildfire-prone area. Not only are their fears reaching new heights, so are the costs to insure their potential forever homes.

Thousands of fires have been recorded in California, slowing down the residential market, and giving Californians yet another reason to head East.

The last few years have been brutal for the state of California. The 2018 wildfire season was the most devastating wildfire season ever recorded in California, with over 8,500 fires burning an area of almost 2 million acres of land. In 2019, over 7,800 fires were recorded, burning almost 300,000 acres of land.

For the first time in history, the proximity to the beach, to Hollywood and to mountains will be trumped by living in middle America.

A number of homes have survived, first and foremost due to the work of first responders, but also because these homes had good defensible space and quality construction.

For the homes that have been spared now it is important to maintain and protect them.

After already spending millions of dollars, insurance companies are continuing to reduce their wildfire exposure.

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Homeowners are beginning to be declined for coverage by insurance companies, and it is predicted that more and more will be declined over the coming months.

Insurance is naturally higher in wildfire-prone areas, which is causing people to lower their offers or completely back out of a planned home purchase.

Homeowners will always be able to buy insurance, it will just be a matter of who allows them to purchase it and how much it will cost. In some instances, the fire insurance coverage could potentially double the homeowners’ monthly mortgage payment.

Some homeowners in wildfire-prone areas are experiencing premium increases as a result of the rate-increase filings the department has approved during the fires over the last couple of years.

Companies regulated by the California Department of Insurance can only charge a premium that is based on their currently approved rate filing. Basically, unless the company approves rates before it’s time for a homeowner to renew, they cannot just raise the rates.

Collectively, the largest insurance companies in the state have declined to renew nearly 350,000 policies in high-risk areas over the last few years.

Thankfully, homeowners always have the option of purchasing insurance from the state insurer as a last resort, the California FAIR Plan. The FAIR Plan home policies have maximum coverage limits of about $1.5 million and they do not include coverages such as liability and theft.

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In order to fill the standard coverages, homeowners have the option of buying a separate wraparound policy.

FAIR Plan policies can also be really expensive. People with FAIR Plan policies have grown tremendously since 2018. (Not that buying a home was ever a fun experience in the first place…)

Increased insurance costs will also possibly slow the pace of home-price increases in the Golden State by making the homes less affordable to middle-class buyers. The sad part is that most of them moved to these areas of California because they were priced out of their bigger cities.

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The value of homes is steadily decreasing, as a byproduct of being located in a dangerous area but home builders are still seeking ways to keep meeting the demand.

New home builders are being required to use top-notch fire-resistant materials. The housing construction continues in the state’s wildlands where about 11 million people now live in 4.5 million homes.

State officials have determined that the focus should be on protecting the existing communities by creating new evacuation routes and helping residents upgrade their homes.

With increased awareness of the potential issues with fire, coupled with the mass devastation from bushfires in Australia, reluctant homebuyers will continue to sit on the fence until a long-term option presents itself.

For the first time in history, the proximity to the beach, to Hollywood and to mountains will be trumped by living in middle America. Who’d of thought that John Mellencamp knew what he was talking about, so many years ago? I’ll take a Little Pink House, please.

I’ll see you in Middle America or probably in Texas. That’s where I hang my (cowboy) hat.

Rogers Healy is owner and CEO of Rogers Healy and Associates Real Estate and Healy Property Management.

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