The Real Deal New York

Here’s what Northern California markets could look like after the fires

Housing market, especially for families, expected to spike as rebuilding begins
By E.K. Hudson | November 05, 2017 05:24PM

Fires in and around Santa Rosa on October 11, 2017. (California National Guard photo)

Fires in Northern California killed 43 people and destroyed 8,900 structures across 245,000 acres of scorched land as of the state’s count last week. With the majority of the fires out, the state’s efforts are turning to rebuilding devastated communities and real estate professionals are beginning to survey the damage wrought, particularly across Sonoma County and in the city of Santa Rosa.

Danielle Hale, chief economist at Realtor.com, shares her forecast for the Northern California markets now that most of the fires are out.

(This interview has been edited for length and clarity.)

What do you estimate the amount of damage will be? Well, it’s pretty substantial. The difficult thing is that they’re already in a really tight housing market situation. So they’re already looking at below normal-vacancy rates for both owner-occupied housing stock and renter-occupied housing stock, so there’s already a limited number of houses available. Just taking more houses out of that inventory of available homes is going to be really difficult for people still in that area to find places to live temporarily while they try to rebuild.

What do you predict the market will be like five years from now, after the immediate recovery is done? What do you forecast after an event like this? It’s really interesting. Some of the academic research shows that in the long run, or long to medium run [of a] five-year time frame, we sometimes see decreases in the values of properties because people decide to move away from those areas. The memory of the fire sticks with them and they just choose to live in an area without that kind of risk. But the interesting thing about this part of Northern California is the economy is so phenomenally strong, and I don’t see that job-creation engine changing anytime soon. It’s possible prices may slow down somewhat, but I don’t think we’re going to see the big decreases that we’ve seen in other areas that have been affected by fires.

Do you think there will be fall-out for surrounding markets that didn’t suffer the consequences of the fires? Do you think their property values will increase because of this? I think in the short-run those areas will see property values increase because people are going to be looking for places to stay while they’re rebuilding, and some people might assume there’s less risk in those areas that didn’t burn. But I think some people will also assume, ‘well, it didn’t burn this time, but it’s pretty close to the areas where the fires were.’

Especially in Sonoma County and Santa Rosa, properties that were not affected by the fire probably stand the most to benefit in the short-run. We’re talking about 5 percent or so of the housing stock — that essentially means 5 percent of the people who were living in the area are now trying to figure out somewhere else to go. We took a look at the assessment data in the area and we found that larger homes, like a three-bedroom and higher, were more likely to be affected by the fire; they were most likely to have been in areas where they were burned, so I think particularly in those family homes, or larger apartments that have more bedrooms that are suitable to families, those are where we’re going to see prices increase the most.

Because you think people will want to buy back into the same area? I think there’s a lot of factors that keep people in an area — jobs, schools, community. I think people are not quick to change where they want to move, especially in the short-run. Now, if you go a few years out, life changes naturally happen and, maybe as people start to have new opportunities, they’ll start to look somewhere else, but I think in the short-run most people try to stay put and get life back to normal as soon as possible.

What this means, especially in these family-size homes — the three bedrooms or higher — [is] you’re going to see prices go up in that area. And that’s not just in the owner-occupied housing market — I think you’ll see it in the renter-occupied market as well.

We’ve seen sudden investment in flooded homes in Houston, do you think something similar could happen in Northern California? Absolutely, especially because there are so many people who will try to stay put in those markets and they’re going to be looking for places to live. It’s going to increase the incentive for people to come in and build in those areas, and, especially for properties that are only slightly damaged that can be rebuilt with minimal effort, minimal time, I think those would be great opportunities for investors. Sure, the investors will make money, but the community will benefit because it will get that rebuilding to happen a lot faster.