Can fires rekindle slumping housing?

October 29th, 2007, 7:00 pm · 14 Comments · posted by Jon Lansner

Will the wildfires that created instant demand for shelter from the newly homeless, and fresh business for the fixers and rebuilders, make a big difference in the California’s gloomy real estate outlook? Here’s what a few sharp minds around the region think:

Alan Nevin, economist for California Building Industry Association … “Fairly insignificant impact, except for resale activity in the areas where the homes have been burned or severely damaged (assuming that the buyers will want to stay in their same school districts.) Most of the homes that burned are in very good school districts.”

Economist Chris Thornberg at Beacon Economics … “All these so called experts are running around saying the rebuilding will help the housing market. Bull! Permits are down about 100,000 per year right now and still falling. The next five years will see half a million fewer units built than the last 5 years. 1500 rebuilds? Drop it the bucket.”

Lender and talk-show host Norm Bour … “The fire will create a huge demand for supplies, workers and related materials, but the collective number of homes affected will probably have little impact on prices and volume.”

Bond trader Ryan Kelly at Spectrum Management … “Not much. Not enough burnt houses.”

Posted in: Firewatch

You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

See blog content by category ...

Bruce says:

October 29, 2007 at 7 pm

Assuming that construction costs are $100.00 a square foot and that the average rebuild is 2,000 square feet, I come up with number of 300 million dollars. That’s not including furniture, cars, temporary lodging, etc.. I bet California gets at least a billion dollars. That’s alot of dollars in my book. But then I am not a suit.

Richard T. Bagley says:

October 29, 2007 at 8 pm

The fires are going to lead us into a housing turn recovery!! Buy Buy Buy!!!!!!!!!!!!!!!!1

Thomas says:

One thing I’ve not seen in discussions of the economic impact of the fires:

The insurers of the burned properties will have to liquidate assets to pay claims, which will probably be at least in the hundreds of millions. My understanding is that insurance companies’ holdings are weighted towards fixed-income securities rather than stocks, because bonds and other fixed-income securities have traditionally been more liquid.

It’s my understanding that one of the reasons for the unfolding credit market debacle was the search of fixed-income-dependent institutional investors — like insurance companies — for yields, after interest rates fell after 2001. Right now, the investment banks are frantically searching for ways to avoid having to discover the price of the mortgage-based derivatives in their portfolios.

I recognize that half a billion dollars in insurance claims isn’t much, but it not be discovered, when the insurers try to cash in these assets (if in fact they have to) that they are worth significantly less than present accounting says? Might that not give another whack of the axe to the credit markets, causing credit to tighten further and help keep real estate deep-frozen?

Travis says:

October 29, 2007 at 9 pm

There were ~120,000 new homes sold in California in 2005. Last week during the wildfires, builders probably built more new homes than burned down.

Patricio says:

October 29, 2007 at 10 pm

So, the insurance pays the cost to replace the house, probably what 175-200k? However, if they just bought in the canyons, which they probably didn’t since houses are not moving back there - never know about the infamous house ATM syndrom though. However, should they have, they would still be paying the mortgage, and then have rent out a place? Or I am sure there are agencies because of the media attention and scope of the disaster that they would be gettig some kind of assistance in this for mortgage payment? How does this work? I know they pay to replace the house, not the value of the land….

Carlos says:

Banks and Lenders are actual Homeowners. Insurance payouts will go directly to them. Depend on each situation, homebuyers will get their fare shares, live within your mean, save as much as they can for future down payment 2 years from now.

Blessing in disguise. God bless Americans.

Cuban66 says:

The burnt houses will not lead to a housing recovery, most of the people have fire insurance. The insurance companies aren’t going to be happy, oh well! No, this isn’t a good time to buy buy buy!!!!!!!, like Mr. Bagley suggests. It sounds like Mr. Bagley is a struggling real estate agent who needs to make some money in these hard time. Hang in there Mr. Bagley you have a long, hard ride before there is any kind of recovery.

Get out whenever you have a chance to start all over again later. Current homebuyers still paying for equity. Banks own the house. Do not make a same mistake again. Be happy renters for now.

republicans ARE traitors says:

October 30, 2007 at 12 am

Is there anyone with common sense that reads this blog? The insurance companies will pay out very little money to the few people that lost their homes. The land contains all the value. After the insurance companies complain they had to actually pay some money, they will raise EVERYONE’S premiums causing more people to go into foreclosure. There is a reason insurance companies are the most profitable companies in the world.

October 30, 2007 at 8 am

sarcasm on

usetoreadtheregister says:

October 30, 2007 at 4 pm

This blog has turned into just another “Bubble Blog” Its too bad because there was for a while actual balance of ideas and comments

rants says:

October 31, 2007 at 11 am

“usetoread..” if the truth hurts…just leave oh and take
your toys

Slice	Price	Ch.	Sold	Ch.
House	$500,000	+18%	1,833	+11%
Condo	$290,000	+7%	881	+22%
New	$617,500	+24%	171	-17%
All OC	$435,000	+10%	2,885	+12%

Orange County Register