Vallejo residents Theresa and Daniel Ochs found the perfect place to spend their retirement years: a three-bedroom home on two acres in Garden Valley, in verdant rolling hills a few miles from the Eldorado National Forest.
“You should go see it,” Theresa Ochs said. “It’s got craftsmanship in there. The woodwork is amazing. It’s got a nice chef’s kitchen. I could just see myself waking up in this house.”
The couple made an offer — and then encountered a nasty surprise. One insurance company after another refused to sell them a homeowners’ policy because of the wildfire risks in El Dorado County. The Ochses reluctantly withdrew their offer last week.
California’s wildfires have found yet another way of doing serious harm to rural California — by hammering its housing market.
The refusal of insurance companies to cover homes in fire-prone areas is prompting home buyers to cancel purchases and look elsewhere.
That’s depriving struggling rural areas of one of their most reliable sources of economic oxygen — the steady influx of well-off retirees and other transplants from Sacramento, the Bay Area and other prosperous areas.
“It’s another ... hardship that’s hit because of the wildfire issue,” said economist Jeff Michael of the University of the Pacific. “We tend to see lower incomes in those areas. People are attracted to them by the housing affordability and rising insurance costs put a real dent in that.”
Pounded by two straight years of catastrophic wildfires, insurers are raising rates, abandoning long-standing customers and refusing to write new policies. Many homeowners are forced to purchase from unregulated “surplus” carriers or the California FAIR Plan, a bare-bones policy that acts as the state’s insurer of last resort. The resulting coverage can cost up to triple what a traditional carrier would charge. Some desperate homeowners are getting quotes of up to $10,000 a year.
Realtors said this translates into lost business. Home buyers give up on purchases, or their lenders scuttle the deal because the borrowers no longer qualify for their loan.
There are no official estimates on how the insurance crisis is killing real estate deals during escrow. But Ken Calhoon, a real estate broker who lives in the Pilot Hill region of El Dorado County, said as many as 10 percent of the deals in his area are falling through “because insurance is either unavailable or the premiums are just too high. Buyers just don’t expect that kind of cost.”
Bay Area transplants, normally a big segment of the purchasers in the El Dorado foothills, are backing off.
“They’re choosing not to live there; that’s what’s happening,” Calhoon said. “We’re not seeing the sales activity on the more rural properties, properties that are in the more fire-prone areas.”
Loan officer Toni Ryan, who works in the Meadow Vista area of rural Placer County, has watched three home sales fall out of escrow in the past two months. She said the rising premiums can unexpectedly add hundreds of dollars to potential buyers’ monthly mortgage payments.
“All of a sudden their payment goes up $200,” Ryan said.
She said home buyers are so discouraged, they’ve stopped looking. Restaurants and others in rural areas “are complaining that they’re not seeing the same traffic as they used to,” she said. “You’re not seeing people up here looking for homes.”
Rural areas suffering
California’s housing market has softened somewhat in the past year, and the number of homes sold in June fell 5 percent from a year ago, according to the California Association of Realtors. But the decline is more severe in fire-prone areas. Sales are down 15 percent in Nevada County, 10 percent in Placer county, 18 percent in Shasta County and 24 percent in Tuolumne County.
In many cases, the disruption in the housing market is happening in the parts of California that can least afford it. The economic recovery in fire-prone counties has lagged behind the rest of the state. While statewide incomes grew 42 percent from 2009 to 2017 — not adjusting for inflation — they increased just 34 percent in Shasta County, 31 percent in Amador County and 37 percent in Nevada County, according to the U.S. Bureau of Economic Analysis.
Staci Heaton, senior regulatory affairs advocate with the Rural County Representatives of California, a lobbying organization, said much of rural California has never fully recovered from the collapse of the timber industry in the 1990s. Tourism, which helped offset the losses in the forestry business, has been on the decline.
And now skyrocketing insurance rates are adding another challenge.
“We’re already struggling to keep our communities and our counties solvent and afloat and find industry and jobs,” she said. “We see this as an additional stressor that just compounds everything else.”
Andy Lucas has seen the problem first hand. As head of the Lake County Economic Development Corp., he’s struggled to lure businesses and residents to a county where population is stagnant and 20 percent of its residents live in poverty.
“With what we’re seeing with insurance premiums, that is an absolute barrier to attracting residents and economic development,” Lucas said. “If a developer or business owner were looking to come into Lake County, they’d have to look at the insurance cost .... It’s certainly a hindrance.”
The regions such as Lake County that are struggling with the insurance crisis tend to be inside the boundaries of what California fire officials have designated as “very high fire hazard severity zones” — the places most vulnerable to devastating wildfires. A McClatchy investigation earlier this year found that that more than 350,000 Californians live in towns and cities that exist almost entirely within those zones.
The investigation also found that Cal Fire’s designations have proven eerily predictive about of the state’s most destructive wildfires in recent years. The Camp Fire in Paradise, the worst in state history, was almost entirely inside such a boundary. Malibu, where the Woolsey Fire burned more than 400 homes last year, also falls within very high hazard zones. The small Lake County town of Cobb, much of which was destroyed by the Valley Fire in 2015, was in one of these zones.
The county has burned and burned again in recent years, with hundreds of thousands of acres scorched. About 2,000 homes have been destroyed by fire since 2015. Not surprisingly, real estate agents have learned to make sure buyers line up their insurance coverage at the front end of any deal.
“It used to be you’d wait until the last minute to get their insurance,” said Christine Scarioni, a Coldwell Banker agent in Lake County.
Problems in SoCal
The real estate market in fire-prone areas of Southern California areas is experiencing similar problems, but the costs can be greater in coastal communities where property values are higher than in the Sierra foothills, said Pat Potter, managing partner of Bob Gabriel Co. Insurance in Santa Monica.
He described a homeowner in Santa Monica suddenly seeing his $8,600 a year plan he’d had for 25 years canceled. Replacement coverage ranged as high as $25,000 a year. Potter said a deal on a client’s $4.5 million home in Bel Air fell through because the buyer couldn’t find insurance other than the FAIR plan, which only covers a maximum of $1.5 million in potential losses.
“There isn’t a county that I can think of that has not been affected by this,” Potter said. “We’re talking about Riverside, San Bernardino, San Diego, Ventura. You go up and down this state, and I don’t know an area that hasn’t been impacted.”
Meanwhile, the inventory of unsold housing is piling up in the foothills. Janice Wechsler, an agent with Coldwell Banker Residential Brokerage in the rugged Foresthill area of Placer County, said the problem is worsening as homeowners, irate over rising insurance premiums, seek to get out. She’s hearing of longtime residents of the area looking at moving to Nevada, Oregon and Idaho.
“They’re being canceled, they’re watching their rates tripling or quadrupling,” Wechsler said. “It becomes the proverbial straw. They say, ‘I’ve had enough of this.’”
Selling has gotten tougher, however. In Placer County, the unsold inventory index — the estimated time it would take to sell off all the homes listed — rose to 2.7 months in June. That was up 12 percent from a year ago, according to the California Association of Realtors. In Nevada County, the index has jumped by more than a third in the past year, to 5.4 months. In Tuolumne County, it’s soared by two-thirds, to 7.9 months.
Cathy Mudge, a legislative staffer at the Capitol, wants to relocate to Sacramento from Foresthill in the Placer foothills northeast of Auburn. Her home, listed for $535,000, has been on the market since March, and it’s taken far longer than she ever imagined to find a buyer.
The steps she’s taken to improve the marketability — like uprooting 15 trees on her property to reduce wildfire risks — haven’t helped move the property.
“The market has just tanked,” she said.