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Wildfire and Climate Risks Impacting Housing Markets
Living in Los Angeles, I often wonder about the long-term risks that wildfires and climate change pose to housing markets. I decided to take a closer look at wildfire risks based on data from the Federal Emergency Management Agency (FEMA) and expand the analysis to climate risks across the entire U.S. This exploration is crucial for real estate investors—especially those who are buying properties out of state—who may not fully understand the impact of natural disasters on specific housing markets.
The Wildfire Risk in Los Angeles
As a resident of the San Fernando Valley, I’ve experienced firsthand the effects of wildfires, including hazardous air quality. Despite this, my area has largely been untouched by fire. What struck me was the wildfire risk breakdown from FEMA, which maps the risk by census tracts (essentially smaller regions like ZIP codes). The San Fernando Valley sits right in the middle of the map, where areas within the zone are prone to fires.
Though the risk of wildfires doesn’t guarantee that an area will be affected, it’s essential to recognize that certain neighborhoods are more vulnerable. Even areas like mine, which may seem safe from wildfires, could be hit by other natural disasters like earthquakes, which Los Angeles is infamous for.
Lessons from the Los Angeles Fires for Property Owners
The fires in Los Angeles serve as a cautionary tale for property owners. Many homes were left without proper insurance coverage when the fires struck, especially as some policies were canceled shortly before the disasters hit. If you’re a homeowner or renter in high-risk zones, it’s critical to have a comprehensive insurance policy in place—and even better, a disaster preparedness kit to help in emergencies.
Housing Markets with the Highest Wildfire Risk
When examining other high-risk housing markets, it’s clear that the West Coast and Southwest areas face the highest risks of wildfires and climate-related disasters. FEMA calculates “Risk” by considering factors like the “Expected Annual Loss” and “Community Risk Factor” to determine vulnerability.
The markets most at risk for wildfires include:
- San Diego-Chula Vista-Carlsbad, CA
- Riverside-San Bernardino-Ontario, CA
- Los Angeles-Long Beach-Anaheim, CA
- St. George, UT
- Oxnard-Thousand Oaks-Ventura, CA
These areas, where housing costs are high and elderly populations are prevalent, are particularly vulnerable. The effects of recent fires in Los Angeles, displacing thousands in a city already facing a housing shortage, show how these risks can disrupt markets and exacerbate existing challenges, such as rising rents.
The Least Resilient Housing Markets
Turning our focus to the least resilient housing markets, I looked at FEMA’s “Expected Annual Loss Rate” (EAL Rate), which predicts the financial impact of natural disasters on existing buildings. This metric doesn’t factor in demographic vulnerabilities but focuses solely on the buildings’ risks.
Some of the most disaster-prone counties include:
- Galveston County, TX (Houston area)
- Orange County, TX (Beaumont area)
- McIntosh County, GA (Brunswick area)
- Onslow County, NC (Jacksonville area)
- Washington County, FL (Panama City area)
These markets are at heightened risk for severe weather, and the damage could significantly drive up insurance premiums and repair costs.
The Most Resilient Housing Markets
On the flip side, there are areas that offer more resilience against climate and disaster risks. These markets are situated around the Great Lakes and certain parts of the Rocky Mountains, such as:
- Monroe County, NY (Rochester area)
- Allegheny County, PA (Pittsburgh area)
- Kootenai County, ID (Coeur d’Alene area)
- Mesa County, CO (Grand Junction area)
- Erie County, NY (Buffalo area)
These regions boast strong resilience scores, meaning they’re less likely to suffer severe damage from natural disasters. With affordable housing markets and excellent rent-to-price ratios, these areas could be a smart choice for investors looking to minimize risk while maximizing cash flow.
Conclusion: Protecting Your Investments
The fires in Los Angeles in 2025 are a stark reminder of how climate risks can affect housing markets. As climate-related disasters become more frequent, real estate investors need to consider these risks when choosing where to invest. Ensuring adequate insurance coverage and being prepared for emergencies can make a significant difference. If you want to explore these risks further, FEMA’s Risk Index map is a great resource to understand the disaster preparedness of different housing markets.
In the previous post: “Is Now a Better Time to Invest in Real Estate Debt or Equity?“
Wildfire and Climate Risks Impacting Housing Markets
Has the U.S. Housing Market Finally Begun to Thaw After the Pandemic?
It seems like the housing market might be showing signs of life. According to a recent report from Redfin, pending home sales in early October have seen their largest year-over-year rise since 2021, with a 2% increase in the four weeks ending October 6.
This news is likely to be welcomed by real estate investors who have felt the market has offered limited opportunities over the past few years. However, it’s important to take a cautious approach—one promising statistic doesn’t necessarily indicate a broader trend.
Is the Housing Market Truly Recovering?
Let’s explore the different factors at play.
Interest Rate Reductions: A Critical Factor or a Red Herring?
The Redfin report links the surge in pending sales to the Federal Reserve’s much-anticipated rate cut announcement in mid-September. According to Redfin, this announcement prompted buyers to re-enter the market in late September, despite mortgage rates having already been falling for weeks before the cut.
This psychological boost is crucial. Although buyers were aware of the falling rates beforehand, many seemed to be waiting for a formal signal to act. This could be attributed to a lingering fixation on the ultra-low rates of 3% to 4% that buyers enjoyed before 2022.
Any rate cut announcement serves as a nudge for prospective buyers, making them feel that now might be the right time to purchase, even if mortgage rates had been decreasing already. In an unstable mortgage market, such announcements hold significant influence.
However, mortgage rates are just one piece of the puzzle when analyzing housing market performance. As noted by Investopedia, the real estate market is driven by four primary factors: interest rates, demographics, economic conditions, and government policies.
Demographics: Shaping the Market
During the pandemic, demographic shifts had a profound effect on U.S. real estate, with major population movements like the Sunbelt migration fueling booms in cities such as Phoenix and Austin, which later became unaffordable for many.
Age is another key demographic factor, and the millennial generation’s pent-up demand continues to be a driving force behind the rise in home purchases. Despite the challenges of the past few years, millennials who have longed to become homeowners are now entering the market in greater numbers, as more properties become available.
Rising Inventory: A Sign of Stabilization
A key factor contributing to the market’s stabilization is the growth of housing inventory over the last year. The pandemic had a significant impact on the availability of homes, with sellers hesitant to list properties due to COVID-19 restrictions and, later, higher mortgage rates.
Some homeowners, particularly those upgrading to larger homes, found it financially challenging to sell and take on higher mortgages. Others, however, simply chose to wait for a more favorable market.
Although the latest Realtor.com report shows that inventory remains down by 23.2% compared to pre-pandemic levels, we are seeing an upward trend. For instance, new listings have been rising since last year, with a 5.7% year-over-year increase for the four weeks ending October 6.
As of September 2024, some states have even surpassed their pre-pandemic inventory levels, including Tennessee, Texas, and Idaho, with others, like Washington, close behind.
Vulnerabilities in Certain Regions
However, not all regions are showing positive signs. For example, some areas, particularly those affected by extreme weather, have seen inventory spikes not because of market recovery, but due to homeowners trying to offload damaged properties they can’t afford to repair.
For instance, regions like Florida and North Carolina, hit by hurricanes, have experienced increases in home listings, but these may reflect a response to climate-related challenges rather than market health.
Opportunities for Investors
Investors should be discerning when choosing markets, focusing on regions where inventory is growing due to increased home construction rather than climate-related distress. States like Idaho, Utah, North Carolina, and Texas, which are building new homes, offer potential, though caution is needed in areas prone to natural disasters.
The Midwest and Northeast, meanwhile, still face significant challenges in recovering to normal market conditions. These regions have lower rates of new construction, meaning inventory remains scarce, which could present both opportunities and difficulties for investors.
The Bottom Line
The U.S. housing market is showing signs of recovery, but the situation remains complex and varies by region. Interest rates play an essential role in unlocking the market, but investors should also consider other critical factors, such as homebuilding trends, climate risks, and government policies. While the market is heading in the right direction, it’s crucial to examine regional differences carefully before making investment decisions.
In the previous post: “Is Now a Better Time to Invest in Real Estate Debt or Equity?“