REAL ESTATE, WILDFIRES, AND HUMAN NATURE
It’s hard to stay bitter. When hot wildfires meet a hot real estate market, the results stay hot. Within 2 years, home prices return to pre-fire levels. Do we really forget that easily?
Science says yes. Human perceptions of natural disasters remains as short as ever.
Here’s the gist:
If you’re thinking of buying real estate in danger zones, now is the time. They’ll be coming back up.
If you’ve been thinking of selling and your house was torched, statistics show that people are taking the insurance money and running.
And if you’re in the fire zone and were thinking of selling, just wait a couple of years - you’ll be fine.
In other words, if you and your loved ones are safe, then things will return to normal.
Here are other findings from experience and others' research:
1. Fires tend to occur in desirable areas. The desirability of these locations is resilient to wildfires.
This year’s Woolsey fire is no different. Homes for sale in Malibu, Calabasas, and Thousand Oaks have an average sale price of over $1 million. Yes, we'll see a dip. But the market for luxury locations simply can’t grow. Demand will resume. Real estate agents always talk about “location, location, location.” It's not a cliche.
The optimism bias states that we think disasters are less likely to occur to us. Alternatively, we also think we’re more likely to win things like lotteries. The same applies for wildfires. In the face of natural disasters, folks are insisting that “this is my home, my neighborhood, and my community.” We stay true to optimism, even in the face of harsh realities.
2. Less desirable areas struggle to recover from wildfires.
The optimism bias has a caveat. We see the silver linings in things that are generally perceived as positive. For things that have a negative bias, we confirm our opinions by doubling-down.
Sylmar is seen by many as a lower-class neighborhood. Don’t get me wrong - Sylmar is one of my favorite places. It’s surrounded by 3 major freeways, is a portal to Koreatown, Santa Clarita, and Glendale, and has some of the most beautiful hiking spots.
But wildfires have had a negative impact on its home prices. Sylmar home prices take repeated hits after each fire, struggling to rebound. This example is particularly significant because its house and lot sizes are higher than its cousins - San Fernando & Arleta. Technically, Sylmar houses should be worth more than they are.
I don’t have direct causation to support this. But as a real estate agent, this is the general notion I get from buyers. People are much more eager to move into Malibu than Sylmar. They’ll overlook reasoning to get the zip code. The point I’m making is this: the negative attention Sylmar gets for its crime rate doesn’t help the fact that it’s in a high-danger zone. People become more attuned to the possibilities of negatives.
3. The ones that are getting ready to leave California will go
California says goodbye to at least 100,000 people a year. Whether it’s the liberal politics, high taxes, outrageous home prices, or lack of Shake Shack establishments, there are California haters.
The explosion in population in Arizona and Las Vegas is thanks in large part to people leaving our state.
In a sense, when people are looking for answers, they swerve towards a confirmation bias. That is, they are more attuned to information that aligns with their beliefs. A disastrous wildfire like the Woolsey will only confirm what the haters believe: it’s time to leave California.
4. California makes equity millionaires. They’re going to head out too
Skyrocketing home prices have turned many San Fernando Valley homeowners into millionaires. The issue is that their money is tied into their house. The only way they can pull it out is by selling, refinancing… or insurance money.
You’ll see a lot of homeowners elect to take the insurance payout and just leave to a more affordable state. After something as harrowing as seeing their house burn down, people gravitate towards new beginnings.
Even if they stay, insurance prices will shoot up - making homes even more expensive.
Humans are fickle creatures. Any aspect of real estate will reveal that. Homeownership is one of the most emotional parts of the American dream. The catastrophe of a natural disaster elevates our emotional state.
If you’re feeling logical, now’s the time to scoop up prime real estate. Humans find it more comfortable to just forget.
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