The wildfires in California
October 24th, 2007 by KenricI had a talk with him about property values. He was wondering what this fire would do to his property value if his house was saved or if his house was destroyed. I think that people forget things like this very fast. I doubt that property values would go down if the subdivision was untouched.
As an investor, I don’t get attached to my properties or material things at all. It’s all replaceable. Of course I wouldn’t choose to have my house burn down, but if it had to, I wouldn’t be that upset.
I think that if his whole subdivision burned down, that it may increase his property values in the years to come. His subdivision is about 15-20 years old. The houses are pretty nice, and people are doing room additions and full interior gutting remodels. This tells me that they are getting somewhat outdated. So here you have a bunch of older homes in a great location.
I asked him, what if you could tear down your home and have the insurance company pay to rebuild it? What would you do different. He had a nice list of things he would do. You could build that custom home you’ve always wanted and live in the same place as before. You start over with new furniture, new TVs, new clothes, new everything. Of course, there’s the hassle of living somewhere else for 2 years. Where would they live?
I’m waiting to see how many people from San Diego decide to move out to Phoenix. What about those people who couldn’t sell their vacant homes at a huge loss? Are they happy or sad? Can they just take the insurance money and not rebuild and leave it as a vacant lot?
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I was thinking about this same issue this morning. My thinking went in another direction… do people have ENOUGH insurance so they can rebuilt their houses?
I do know that many cut corners there to reduce the insurance payments, so maybe they insured the Dwelling Replacement Cost a little bit lower than it should and they will be out of pocket on that difference. Also, in many cases, insurance policies have not keep up with inflation and this value is outdated.
My policy does have automatic inflation coverage, but I don’t believe in the official inflation numbers anyway, so maybe is time to call my agent to increase this a little bit to make it more realistic.
By Andres on Oct 24, 2007
If i had any investment property in CA I would be happy if my house burnt down!
I’d get insurance money which would allow me to build a brand new house!
I’d also rental income to cover the loss from the insurance company while the new house was being built.
By Living off dividends on Oct 25, 2007
In October 1991, several hundred homes were destroyed in the Oakland-Berkeley Hills in California. A number of interesting things happened after that fire.
Many people discovered that they were underinsured and could not replace what they had lost with their insurance money. Most of the houses were built in the 1920’s to 1950’s, and many had architectural and finish details that were difficult and/or extremely expensive to replace. Much of the existing construction had not been to code, and there was a lot of uncertainty at first about what could be rebuilt and how. There were not enough contractors, and construction prices rose dramatically. Many of the houses were on steep hillside lots with poor access and the cost of building on these steep lots was not adequately insured. The insurance disputes were lengthy, and it took almost 10 years to completely rebuild.
At the time the fire occurred, California was in a recession and housing prices were declining from their peak in mid-1989. Some people took the insurance settlements and sold their lots. You could buy a sloping bay view lot for $60,000 or less. I remember thinking at the time I should buy a couple.
Over time, the uncertainty disappeared, insurance companies settled, and new houses went up. The view lots were gobbled up and built on by spec builders or new owners. The economy improved, and home sales and values throughout the Bay Area picked up. People began to forget about the fire.
By the 5 year anniverary of the fire in October 1996, the burned areas looked like neighborhoods again. The dot com era began around that time, and values took off. I think those $60,000 lots would have gone for well over 10 times that price by 2005.
Insurance companies are better prepared to deal with these fires than they were 16 years ago. San Diego went through similar fires just a couple of years ago, so the insurers have recent experience with this. Some people will still be underinsured, and the policies are more limited in scope now. There will be changes in what is built. Some people will take their settlements and move on.
Buying opportunities will occur if there is a recession during the next couple of years. People generally become discouraged and decide to get out after the insurance settlement offers and contractor bids come in, usually 6 to 24 months after the fire. This did not happen after the last Southern California fires, as values were increasing rapidly and money to finance rebuilding was cheap. If property values go down significantly, there is less incentive to rebuild. That’s the time to buy.
By Another Investor on Oct 28, 2007
Here is the Wikipedia reference for the Oakland-Berkeley fire.
http://en.wikipedia.org/wiki/Oakland_Firestorm_of_1991
Approximately 3,200 single family homes and condo/apartment units were destroyed, so the magnitude of the dwelling unit destruction is similar, but the fire area was much smaller.
By Another Investor on Oct 28, 2007
Last night here in the Bay Area we had a sharp reminder of what will cause a significant population relocation – a massive earthquake. A 7.8 plus magnitude earthquake here will destroy at least 100,000 homes and kill at least 10,000 people. Southern California is at risk as well. Phoenix will look as good to individuals as it already does to businesses seeking to avoid disruption due to weather and earthquakes. Once people can get out, you will see a huge influx of people from the affected area.
By Another Investor on Oct 31, 2007