V.I.P Mortgage

Capital Commentary
- by Kirk Willison
kwillison@archmi.com
www.archmi.com
Direct 202-714-8606

Big Question: After the Fires, What Now?

The recent fires in Los Angeles are a stark reminder that Mother Nature's power cannot be ignored.

Why it matters: Natural disasters are exacerbating challenges in a housing market already strained by shortages, rising interest rates and skyrocketing insurance premiums.

By the numbers:

• CoreLogic reports the Eaton and Pacific Palisades fires in Southern California could cost between $35 billion and $45 billion, damaging over 17,000 structures with average insured losses nearing $1.9 million per structure.
  
• Zillow values the average home in the Pacific Palisades ZIP code at $3.4 million; in Altadena's ZIP code, it's $1.3 million.
  
• Hurricanes Helene and Milton, which hit the Southeast in late 2024, accounted for damages exceeding $100 billion, according to the National Oceanic and Atmospheric Administration.

What they're saying:

"Rents will increase, especially near the epicenter of massive fires around Pacific Palisades and Altadena. Those planning to rebuild their homes will face intense competition for contractors. And impacts on wavering home insurance markets could lead to greater costs for all Angelenos." - Liam Dillon, Los Angeles Times

Yes, but: Los Angeles Mayor Karen Bass issued an executive order to speed the rebuilding of homes and minimize dislocation of residents. It will:

• Create a toxic debris removal plan, which is essential before rebuilding can start;
  
• Instruct city departments to review building plans concurrently and complete them within 30 days of submission; and
  
• Permit homeowners to set up recreational vehicles, tiny homes or other temporary residences to remain on their land for up to three years.
  

Rebuilding woes: Bloomberg notes that property owners seeking to rebuild will be hampered by higher material costs, and new insurance and property tax burdens.

• And labor will be in short supply. Tens of thousands of construction workers are committed to build facilities for the 2028 Los Angeles Olympics, leaving fewer to rebuild homes.
  

The bottom line: Returning to normalcy, of course, is a welcomed state. The bigger question, however, is whether homes should be rebuilt in areas so at-risk for disasters.

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