Chris Hicks was showing a million dollar house near the 500 block of North Palisades Drive when a row of fire began its descent down the mountain. By Monday night, the brush fire had swallowed roughly 40 acres of hillside terrain but didn’t scorch any structures.
His listing was spared.
“It’s a beautiful area, but it’s a scary situation,” Hicks said.
The seaside Palisades neighborhood is one of Los Angeles County’s poshest, most in-demand areas, with home prices ranging from $2 million to $20 million, according to Fran Flanagan at Compass.
But the threat of fires in the Palisades, and last year’s historic conflagrations in nearby Malibu – which burned nearly 100,000 acres of land and destroyed over 1,600 structures – have damaged the luxury real estate market. It has dramatically increased the cost of home insurance and thinned out the buyer pool, multiple agents said.
Richard Stearns, an agent at Compass, said that home insurance in the Palisades used to run about $6,000 to $10,000 a year. These days, it’s about $20,000 to $30,000 per year amid insurers’ growing concern over fire payouts. Over the last two years, California wildfires have cost insurers more than $24 billion, according to the Wall Street Journal.
In the Palisades, it comes out to about $2,000 to $3,000 per month in home insurance costs, Stearns said, a figure on top of the $7,000 to $8,000 a month mortgage a prospective homebuyer may put down for a $2 million home.
“People are pausing because of that,” he said of prospective homebuyers. “The really high-end buyers it doesn’t matter, but people buying homes for $2 million in the Palisades, it does.”
Stearns said that he’s seen homebuyers walk away because of the staggering insurance costs.
According to Hicks, a broker with The Agency, rising home insurance rates are eliminating some buyers who can only afford the property through long-term mortgages. “You are more left with cash buyers,” he said.
The concern over fire insurance has also spread to other pricey L.A. neighborhoods vulnerable to wildfires.
Aaron Kirman at Compass said that he has had deals in Bel Air collapse due to home insurance complications.
Wildfires are just one of several concerns for luxury buyers and developers in Los Angeles, Kirman said, but the cost of insurance is a significant reason for the luxury market’s struggles.
“Even for rich people the cost is so sky-high when you are seeing these insurance quotes.”