Will California Wildfires Cause a Housing Market Collapse?

The recent wildfires in California have left many wondering about their impact on the housing market. Are we on the brink of a collapse? If you’re thinking about buying or selling a home in California, understanding the dynamics at play is crucial.

In this post, we’ll dive into four critical factors you need to know before making any real estate decisions.

1. Is Loss of Inventory Causing a Housing Shortage?

California wildfires tragically destroyed thousands of homes, but how does this impact the market? Let’s break it down:

• LA County has over 1.8 million single-family homes.
• Wildfires destroyed 12,000 homes, representing just 0.63% of the total inventory.

Even though the loss is significant, it doesn’t drastically affect the market as a whole. While fewer homes are available, the overall impact on inventory remains relatively small.

2. Are Homeowners Affected by Wildfires Likely to Rebuild?

Yes, but the rebuilding process will take time. Challenges include:

• Permitting delays: LA County is notorious for slow approvals, especially in coastal areas governed by the California Coastal Commission.
• Insurance hurdles: Navigating claims can vary greatly among homeowners.

Most people do rebuild, but it will likely take years for these homes to re-enter the market, meaning the short-term effect on inventory is limited.

3. The Surge in Rentals

Wildfire victims often turn to the rental market while rebuilding. Here’s what the numbers show:

• Pre-wildfire vacancy rates in Orange County: 4.6%.
• Post-wildfire vacancy rates: Dropped to 2%.

This increased demand for rentals has strained availability, but protections against rental price gouging are in place. If you’re considering renting in affected areas, keep this in mind and report any illegal practices.

4. Homeowners Have Equity—and That Changes Everything

Unlike the 2008 crash, today’s homeowners have significant equity:

• Average homeowner equity in California: $497,000.
• Average home price in Orange County: $1 million.

With 50% equity on average, homeowners have a strong incentive to hold onto their properties. Additionally, stricter lending standards mean most homeowners are financially stable, reducing the likelihood of foreclosures.

A Word of Caution About Waiting for a Crash

If you’re holding out for a housing market collapse, think again. The market has shown resilience, and waiting could cost you more in the long run. As history shows, prices tend to rise, and the best time to buy is when you’re ready to start building equity.

Bottom Line

The California wildfires are undoubtedly devastating, but they’re unlikely to cause a housing market collapse. With resilient inventory, steady rebuilding efforts, and significant homeowner equity, the market remains stable.

If you’re considering buying or selling a home, now is the time to act. Stop waiting for a crash and start building your future today.

Need guidance on your next move? Call me at 714-844-5696 for personalized advice. Together, we’ll find the best strategy for your real estate goals.