Fires and fallout

Good morning. We've had a few requests for a post on the fires, so here it is. Our first thought is probably yours as well: We're hoping for the best -- minimal loss of life, and minimal damage to property.

Though we are hesitant to go straight into an economic discussion of such a disaster, this is an economic blog and we sense some interest.

Random thoughts: It is possible the fires will cause a slight, temporary change in the supply-demand dynamic in Southern California real estate  -- that is, marginally more demand, marginally less supply. At present there are 157,000 homes for sale in the five counties most affected (Inventory levels from Bubble Markets Inventory Tracking: Riverside, 32,000; Los Angeles, 59,000; San Bernardino, 23,000; Orange, 20,000; San Diego, 23,000).  In those five counties, sales last month totaled 11,800 homes.  Remember, not everyone who loses a home will run out and buy one; and not everyone who loses a home will stay in the area; some of the burning homes are vacant. Another caveat: Throughout the affected areas, the fires will cause a temporary freeze on all home sales activity -- very few people will go to open houses this weekend in the affected areas.

Economic impact: Generally speaking, quick natural disasters cause a short-term increase in economic activity. People flock to Home Depot and Wal-Mart to buy emergency supplies, the government spends a lot of money, insurance claims are paid out, houses and businesses are rebuilt. That said, Gov. Arnold Schwarzenegger is warning that this disaster will cost the state some economic activity.

Big-picture longer term fallout: It's possible the fires will represent a "tipping point" of sorts that will cause governments to pause and reconsider the wisdom of heavy development in dry, fire-prone areas in the Southwest. We consider this unlikely -- central planning and decision-making are not big factors in the American economy.  An event of this magnitude, though, could make it more expensive, and thus less attractive, to build in fire zones -- through higher insurance premiums.

Your thoughts? Insights? E-mail story tips to lalandblog@yahoo.com
Photo Credit: Los Angeles Times

Comments

[Cal]

Posted by: Anonymous | October 23, 2007 at 07:23 PM

A thing of beauty..

[investorguy]

Anonymous: yawn. Buh-bye.

[Inland Empire]

Wow!! All the flames are not just in the fires!

[marvabhor]

As of yesterday WAMU stopped all fundings of pending home loan application in LA, Riverside and San Diego county due to the fires "until further notice". My guess is they are probably waiting to see how much of a dip home values will take after the fires are through.

[Brian]

Steve and some of the other posters are right. The fires will have practically no effect, beyond the short term. These are million dollar homes that are burning. The glut in the housing market is almost all in the low price end, that is why median prices initially went up as sales went down. The millionaires are not going to take their insurance payouts and buy a starter home. They will almost surely rebuild in the canyons they love.

[xtine]

Peter - I understand you only moderate to avoid expletives and the like, but the flaming and disrespect are getting, well, boring.
Is it in your plan to curb it? Or because it is not LA Times policy to refuse publication of anything that is not foul language or solicitation, are you going to continue to "print" the personal attacks?
What is your policy at this point?

[Rich]

For a bit of perspective, and insurance industry guy was interviewed on msnbc last night and indicated that the losses from hurricanes are always more severe than from wildfires and that Katrina's losses would still be 10 times those of this fire no matter how bad it gets. He indicated that these losses should not be severe enough to discourage insurers from staying in California and that the industry has made enough money off California in recent years to absorb these losses with no problem for their bottom line. So remember that when the speculation starts; in the great scheme of things this event is not likely to have a massive economic impact on either California or the country...

[Toby]

Toby: you're an idiot. RE rebounded fast from Northridge.

Posted by: investorguy

Umm, No it didn't. Northridge was the beginning of the biggest real estate down turn in SoCal's history (well up until this one I would guess).

Remember, before the earthquake, there was big fires, a huge riot and massive job loses in Aerospace, Long Beach lost it's military base...

It was a killing field BEFORE the earthquake. Then after the 10 freeway fell and the 5 and the 14 due to Northridge, the city was literally paralyzed....for almost 3 years.

So you're wrong. RE did not "reboaund" right after the Northridge Earthquake. It took about 8 years to recover.

PS. I wouldn't be dropping the Idiot bomb when posting such inaccurate drivel.

[Toby]

The real estate market collapsed in the early to mid 90's because the economy tanked and the region had been overbuilt in the late 80's and early 90's. The earthquake and riots were not significant events in terms of real estate values, although they were very important for many other reasons.

Posted by: Larry Kaplan

Yeah, the 10 closed for about 3 years didn't hurt RE prices or property values at all **rolls eyes**.

Seriously, that's like saying Katrina didn't really have much affect on RE prices, really, it was the bad economy prior to the Hurricane.

[ProblemWithCaring]

Aw shucks, Problem... no such luck, sport. I've been busy making money. What have you been up to?
Posted by: investorguy |

Oh nothing much Investorguy - helping people, advocating for issues I care about, playing with my loved ones - you know, being young, beautiful and debt-free in Cali! Thanks for asking.

I didnt know how much I've missed you on this blog.

[yours truly, johnny dollar]

Who signed the variances and waivers that allowed these homes to be where they are (were)? It's not nice to fool (foul) Mother Nature.
The piper is being paid. How fast will these people demand that they
get to re-build in these same places? Mother Nature is thining the herd.

[Toby]

toby convienantly omitted the part of my blog that says we will all ultimatly pay for this damage through higher premiums.

do you know what omitted means toby?...........or did you just leave that part out

Posted by: mike

They do both. They don't give uyou any money but they still raise your rates.

The last part was correct, that's why I didn't say anything. But the part about Insurance companys quickly paying out their policies is so laughable.

Here's a thought, did you know that US Senator Trent Lott is suing his insurance company because they refuse to pay out on his Hurricane coverage (home destroyed during Katrina).

A US Senator who has influence over the regulation of Insurance compaies can't even get his insurance company to cover his policy.

So please, lfor this blog sake, lets live in 2007 and not 1964.

PS As for your post below, I wouldn't be dropping the "Fool" bomb when advocating generous Insurance companies. I mean, if you don't understand that....

[Erika]

As dumb as it is to build in a fire zone / flood zone / etc etc, developers will build there because that's how they make money. and as for insurance companies, their absolute number one job is to make money for their stockholders. Providing services to people are always a distant 2nd.

[Ray in Mexican Colony of LA]

While the fires are a true tragedy there is one shining bright spot......the LIMO LIBERALS in Malibu finally got their retribution for dishing so much of America as fire charred EMPRESS of the LOONS, Barbara Striesand's Gated Compound.

The complete destruction of her empire couldnt happend to a nicer person
along with so many of the other psydo-Elites of Malibu !!!!

God bless full and complete retribution !!

[Pete Viles]

xtine wrote, "Peter - I understand you only moderate to avoid expletives and the like, but the flaming and disrespect are getting, well, boring.
Is it in your plan to curb it? Or because it is not LA Times policy to refuse publication of anything that is not foul language or solicitation, are you going to continue to "print" the personal attacks?
What is your policy at this point?"

xtine -- You're correct, I probably should not have published a few of the recent comments. The policy is no dirty words, no advertising for the sake of advertising, and let's try to keep personal attacks out of the arguments. If that's not enough for you, xtine, I apologize.

[sheila]

a few anecdotal comments:

i own a house in the Sawtooth Fire area (i was spared, by 2 lots, touch wood), which was the horrible conflagration of summer 2006 (Pioneertown). The desert bounces back much more slowly than any other type of landscape, so much of the area will be charred with little foliage for decades, as well as being subject to (worse) flash flooding, so we have been seeing this situation for the past 16 months or so.

i have been watching the market out there as a sort of hobby (partly because i was scoping out comps for a re-fi i haven't done yet), and can tell you that houses are listed for at least as much if not higher than they were before the fire. granted, sales volume is now, and always has been VERY low in the immediate vicinity (tiny town), but even in the larger Morongo Valley, i have seen many, many more high-end houses ($500K+ for this area) listed in the past year than over the 3 years prior. yes, some of them sit on the market for a LONG time, but asking prices are not dropping, for what it's worth, and people are not moving away.

that said, the area is full of breathtaking rock formations, historic charm, great weather and cool people, and that seems to add a sort of desirability or immunity that a more (pardon me) "generic" area might not enjoy. it appears that the really beautiful view houses are holding value or increasing, despite the "general" market trend and the fire, and that sellers are confident that people will still come to this area. again, not sure of actual sales prices, so it could just be that "we" are late to the melt-down party, but as we saw in Santa Barbara, gorgeous, unique homes in this $500K - $1.5M within 2 hours of LA are gonna sell regardless of the market.

i imagine that this will also be true in some of the more unique and beautiful burn areas as well, although i am not that familiar with all of them. as an aside, i always chuckle a little when i see the roughly 30,000 square miles of the "inland empire" described as a single neighborhood by the same people who will micro-dissect Los Angeles neighborhoods, street by street. Joshua Tree, Palm Springs, Arrowhead, Big Bear, etc. have about as much in common with Perris, Fontana and Lancaster as Seattle does.

[Brian]

Ray, you must be a fan of Glenn Beck.
"I think there is a handful of people who hate America," Beck said. "Unfortunately for them, a lot of them are losing their homes in a forest fire today." http://www.latimes.com/news/local/la-me-beck24
oct24,1,1363512.story
The rest of us are lucky to have two such enlightened individuals uplifting us with your concern for the whole human race.

[xtine]

Peter - Don't apologize. It's a tough line to traverse. It's your blog to do with as you please, and I like it enough to return 1000 times a day. I was just asking because I was a little taken aback by what I was seeing.

[the house of the hill]

That point where supply reaches demand is closer this afternoon.
Econ 101.
After four days, I can finally smell the coffee (smoke);
and I am at the Desilu Studios.

[Hula Girl]

The insurance companies will soon boot Countrywide out of their #1 Darth Vader position. You watch: We'll all forget about Mozillo and the Bad Loan Bears as the insurance companies come back to put the python squeeze on the erstwhile homeowners. This will make Katrina look like batting practice. The phrase "lessons learned" has been bandied about and I can't help but think that those were lessons in getting away with more. Call me a cynic, but I can't even get AAA to make good on their insurance policy - and that was for a minor towing incident.

BTW Peter - I rather enjoy the uncensored version - much like when the protesters disrupted Bill Maher's show. Sure it's raw - but isn't life. I'd go to church if I wanted my life sanitized.

[Toby]

Ray, you must be a fan of Glenn Beck.
"I think there is a handful of people who hate America," Beck said. "Unfortunately for them, a lot of them are losing their homes in a forest fire today." http://www.latimes.com/news/local/la-me-beck24
oct24,1,1363512.story
The rest of us are lucky to have two such enlightened individuals uplifting us with your concern for the whole human race.

Posted by: Brian

Do they realize that Ronald Reagan's homes(s) and Presidental Libaray is also endangered?

That the "Reagan Revolution" actually started in those burning hills?

Yeah, I don't think so either.

[Frisbee]

where is Ray's "Mexican Colony of L.A."?

L.A. IS a Mexican colony.

[MyLessThanPrimeBeef]

Investorguy, you aren not the only guy making money here.

Most of us also are.

I am buying more gold today, but not real estate.

[appraiser1]

Toby says:
"Yeah, the 10 closed for about 3 years didn't hurt RE prices or property values at all **rolls eyes**."

Please check your Wikipedia:
The earthquake damage to the 10 was fixed in **66 DAYS**.

[investorguy]

MyLess: I never wrote that I was the only one. I have dozens of friends and acquaintances who are doing very well in real estate, right now. I know others who are buying gold, others who are doing extremely well in options, and others who have decided to take 6 months off an play while RE settles down.

It's all good.