Will This Week’s Fires Effect Real Estate?

By Joel Persinger
YourRealEstateDude.com

With San Diego County experiencing the worst fire storm since the Cedar Fires just a few years back, it seems almost mercenary to talk about real estate. A much better thing to be thinking about at present is how to make certain our families are safe and what we might do to support our first responders and those who have lost their homes. Nevertheless, it is important to understand how this tragic event might affect the market for those whose homes are for sale and survive the fire.

As we all know, bad news for the real estate market has been all over the place this past week or two. Just two weeks ago the California Association of Realtors released its California Housing Market Forecast for 2008. In it, the association detailed its prediction that home prices and sales will continue to decline in the coming year, although to a lesser degree that in 2007. In addition, frightening front page articles appeared in both the San Diego Union and the Los Angeles Times detailing this year’s drop in home values and the agonizingly slow speed of the current market.

It is true that the real estate market is not doing well in San Diego and that next year, while expected to be slightly better, is still likely to be quite challenging. The fires probably won’t help matters and are sure to have some effect. Exactly how they will affect the market and to what degree nobody knows for sure.

Loans may be more difficult to cash in on in the short term. For example: I received a call from a mortgage banker this afternoon urging me to take any money I might need from my equity line as soon as possible. I asked why and he said, “Because lenders are freezing equity lines as fast as they can because of the fires.” It seems the lenders don’t want you to take money out since there is a chance that your house might burn down.

Homes sales and prices may decline further. Many folks are put off by natural disasters. Buyers may hold off from moving into an effected area immediately after such an event. People who live in the effected area may move away out of fear or as a result of emotional trauma. Homes may be more difficult to buy. Following the Cedar fire, some insurance companies refused to issue home owner’s insurance in San Diego. If the buyer can’t get insurance, the lender won’t lend and the buyer can’t buy the house.

On the other hand, homes which have been damaged or destroyed are going to need to be repaired or rebuilt, debris will need to be cleared and Infrastructure (such as power and telephone lines, roads, fences and so on) will need to be replaced. This means business for contractors and jobs for their employees. Insurance companies (and perhaps the government) are going to be spending quite a bit of money putting San Diego County back together.

Folks whose homes have been damaged or destroyed will need places to stay. Rentals may be easier to rent and some folks may just buy another house and be done with it, rather than move back to a fire hazard area.

The only thing we know for sure is that, while many of these short term effects may hurt, the real estate market will march on. We are in a down cycle in the market for sure, but, sooner or later it will come back up.