Real Estate in the Wake of California Wildfires

California, renowned for its breathtaking beauty and thriving communities, is faced with a recurring and destructive problem: catastrophic wildfires. Not only do these fires claim lives and property, but they have a significant impact on the real estate market as well. While the final toll is yet to be confirmed, over 40,300 acres and 10,000 structures have gone up in smoke, according to reports. It will take months, even years, to understand the long-term impact of such a catastrophic event. But in what manner do the California wildfires redefine the real estate map, and with what impact for homeowners, buyers, and investors?

Table of Contents

The escalation of wildfires in California

Wildfire impact on property values

A gap between demand and supply

Rent prices surge and upfront payments

Home prices will likely increase

Insurance challenges and industry response

Rebuilding and new construction trends

Future outlook

The escalation of wildfires in California

California's wildfire problem worsened over the past several decades. Statistics from California Office of Environmental Health Hazard Assessment (OEHHA) paint a stark image: since 1950, both the number and total acres of fires in the state have risen appreciably. The trend reached a record-breaking 4.2 million acres burned in 2020 – a record twice any year in its history. That steep increase is virtually due to climate change, with its generation of warmer, drier conditions throughout the state.

The recent devastating wildfires in and surrounding the region of Los Angeles, including the Palisades, Eaton, and Hurst fires, remind one of disastrous consequences. These fires took 29 lives and destroyed over 16,000 structures. The financial impact is tremendous, with estimates for loss that is insured between $28 and $75 billion.

If the broader economic impact is considered, including loss of earnings, disruption in business, and loss in infrastructure, then the cost can go up to a whopping $275 billion. That level of loss has widespread implications for homeowners, communities, and real estate in general.

Wildfire impact on property values

The impact of property value in regards to California wildfires can range between immediate, sharp, and slow depreciation over a duration of years. Properties that have actually been consumed and leveled in catastrophic wildfires will have a sharp depreciation, most commonly a function of high rebuilding and restoration costs and a lingering perception of risk in the area. 

This depreciation in high-risk areas is a growing concern for California homeowners. Research indicates a clear correlation between elevated fire risk disclosure and lower sale prices. A study by Resources for the Future found that between 2015 and 2022, California homes sold for 4.3% less if sellers were required to disclose an elevated fire risk. 

Wildfires also significantly influence market perception and buyer behavior. Consumers become increasingly wary of purchasing property in high-risk regions, and that creates less demand and subsequently less property value. Concerns about potential damage, rising wildfire insurance costs, and the overall safety of the location are paramount.

A gap between demand and supply

The devastating loss of housing in fires in California exacerbates an already fragile marketplace reality: demand and supply gap. Loss of housing, compounded with delayed rebuilding and complications in claim processing, takes a considerable toll in terms of housing availability in affected areas. This shortage is further compounded by the increasing demand for properties in lower-risk zones. 

The combination of reduced supply and increased demand creates a perfect storm for rising housing costs. As an LA real estate agent explained in a Marketplace interview, even before the recent fires, the Altadena housing market in east LA County, where thousands of homes burned down, was already experiencing an inventory shortage. 

With a median home value exceeding $1 million according to Zillow, the market was highly competitive. "We already had an inventory problem and an inventory shortage. So, supply and demand is very possibly going to shift and have housing become more expensive than it already is," the agent noted.

The data supports this prediction. Even before the fires, the market was exceptionally tight. The California Association of Realtors reported fewer than 30,000 homes, townhouses, and condos sold last year in a county of 3.7 million households, representing less than 1% of the total housing stock. 

Now, with an estimated ten thousand of homes lost to the fires, and that number potentially rising, the supply crunch has intensified dramatically. The resulting bidding wars, already a feature of the pre-fire market, are likely to become even more prevalent. This further drive up prices and making homeownership even more challenging for many Californians.

Rent prices surge and upfront payments

The surge in post-fire rentals stems directly from displacement. Thousands of displaced families have to seek new housing temporarily in recovery efforts to rebuild, and that creates a tremendous burden for the rental market. That increased demand naturally generates a rise in rent and it is even more challenging for displaced persons to secure housing at a price that they can afford.

In January 2025, following the devastating Los Angeles fires, "Los Angeles homes for rent" searches grew 186% within a month. With such a sudden influx of renters, a vibrant marketplace is created where renters need to pay a premium price. Renters have experienced price increases of 15% to 20%, several hundred, even thousand dollars per month for rentals, according to reports.

Aside from higher monthly rentals, another trend is the demand for large down payments. There are even instances where tenants have been required to pay 12 months of rentals upfront to be able to sign a tenancy contract. Not a universally practiced custom, but one that imposes another financial burden on those who have not yet recovered from having been displaced from their homes.

Home prices will likely increase

The confluence of these factors discussed – low availability of housing, increased demand, and high rebuilding expense – works towards an upward increase in housing price in the aftermath of severe fires. Real estate market acts in a predictable direction in response to such pressures.  Limited housing inventory, a direct consequence of widespread destruction, naturally pushes prices higher. With less housing, buyers competitively vie for whatever is available, and its value appreciates.

Several economic factors contribute to this upward price pressure. Reconstruction can cost a lot and takes a long time, even when it is a necessity. One analysis of the Camp Fire in Paradise, California, is a striking demonstration of how wildfires can affect nearby housing markets. In the study, housing 25 miles from the wildfire footprint experienced an immediate 13% price gain. Effects extended outwards, radiating 100 miles out, and lasting for at least 10 months post-fire.

The recent Los Angeles wildfires, which have been estimated by CoreLogic to have done between $35 billion and $45 billion in property damage and placed at risk approximately 1.1 million square meters of commercial real estate should have the same effect. Analysts believe the already expensive Los Angeles residential market will experience even greater price gains in the wake of these devastating fires.

Insurance challenges and industry response

Homeowners are increasingly having a hard time with big insurance companies cutting back operations in the state due to heightened climate-related risks. The insurer’s retreat is putting many property owners in a position with little alternative for coverage, driving them to seek out the state's FAIR Plan, a backup insurance plan.

The California FAIR Plan, a mechanism for ensuring persons who cannot secure it in the general marketplace, is under significant strain at this time. Climate-related peril and its increased use have overburdened its assets, raising concerns regarding its future insurance claims capacity.

The insurance problem extends beyond availability. Premiums for buildings in high-risk areas have gone up, with companies rethinking wildfire-related exposure. In a few cases, companies have even refused to sell new policies, and property owners have been forced to seek out alternatives. In combination, heightened premiums and reduced availability make it ever more costly and difficult to insure buildings in fire-prone areas. 

Rebuilding and new construction trends

Following the California wildfire, the arduous process of rebuilding begins. Rebuilding can be slow and contentious, hindered by shortages of materials, costly labor, and new codes for buildings designed to be safer in case of active fires. Lessons of past devastating fires often inform such rebuilding, with increased use of fire-resistant materials and stricter enforcement of building codes. 

However, the decision to rebuild is not one that comes lightly. Homeowners must weigh a desire for ongoing presence in a valued location with financial realities such as rebuilding in a high-risk area, including future fires and increased insurance expenses.

Beyond rebuilding, new trends in development in California are even being shaped by deadly fires. As per data from CoreLogic, one such striking trend is the percentage of new housing developed in Very High Fire Hazard Severity Zones in the past 15 years has decreased. That is a reflection of heightened awareness about danger posed by such high-danger areas.

Simultaneously, construction in Moderate fire hazard zones has nearly doubled. This indicates a preference for building in areas with lower risk of wildfire, reflecting a cautious approach to development in the face of increasing fire danger. 

Future outlook

Governor Gavin Newsom signed a new executive order protecting wildfire victims in the Los Angeles area from predatory real estate speculators, a move that reflects the state's commitment to fixing the complex problem of wildfires. Those predatory behaviors, exploiting wildfire victims' vulnerability, have become prohibited in specific zip codes for three months. 

The executive order also directs state agencies to inform the public about its rights and provide contacts for reporting such predatory activity, and to exhibit a proactive concern for protecting homeowners. This order, accessible here, reflects an expansion of acknowledgement of both immediate disaster relief and long-term solutions to the wildfire problem.

The fate of California real estate will depend on the outcome of these mitigation strategies and the ability of communities, policymakers, and the insurance industry to adapt to the increasing risks of wildfires. 

Information on how to assist Los Angeles County residents can be found at CNN Impact Your World.