Water crisis in CA to affect REI?

Question

I've read three articles from major outlets stating that CA is about to undergo a major RE crash, catastrophe and down fall. They indicate that the drought and restrictions on water usage will cause RE prices to fall to rock bottom! Some properties have taken a 30% decease in value since last year! In essence what they are saying is that nobody will want to buy homes do to the crisis.

I have mixed reactions.... yes there are cut backs on usage and thanks to our government, the $1.4 trillion dollars worth of water that was dumped into the ocean to save a 3 inch "possibly endangered" guppy didn't help us. Nonetheless REI is still happening in other dry areas such as NM, TX and AZ. Your thoughts?

Account Closed · Answer

I haven't taken a shower in weeks!

Pat L. · Answer

If they ever commit to a desalination plant the results will be amazing.My home town Adelaide S.A. has one & I could not believe the difference it made to the landscape. The 'summers of my youth' were always severe water restrictions, dead grass & well water at our farm.The majority of homes, parks etc now have access to non-potable water that is specifically used for landscaping etc & the transformation is astounding. I assume the treated water in the past was simply wasted into the ocean rather than treated for consumption as the powers that be in CA are now considering.

Bryan Christopher · Answer

I'm down south... and at least in most parts of LA county... the market is showing no signs of cooling off. It's as ridiculous as it's been since I've lived here. (Including the play-money days.) There's just no inventory in most remotely desirable areas, so like Louis pointed out... it's bidding wars on almost all properties. Called today on a fixer, underpriced by about 15% in my neighborhood and a few days into the listing they have 11 offers, many cash, the rest 20%+ and all over asking. It's a freaking circus down here. The drought issue could affect prices at some point, I suppose. This assumes that it simply never rains excessively again.... and that there are never ANY restrictions on farmers who use 85% of our water here... and that we NEVER learn to desalinate to any useful degree. It's possible. But, people have haven't done very well betting against California historically...

David Schach · Answer

I think its an ongoing story that will play out in many ways, some known, some unknown. The affect on real estate could be linked to water prices and flow rates. If you only get X gallons a day at crazy high prices then some people on the lower end of the scale might move out of state. BUT---- if there is a moratorium on NEW connections that could offset the demand side because supply is constrained. I can see either scenario playing out. I think the downside risk is very high, considering the crazy run up in prices up and down the state. I am getting early warnings from locals down south that the LA market might be starting to cool off. Not saying its not HOT, just not crazy HOT HOT HOT. Maybe 1 HOT, vs 3 HOTS...

Luis Rolando · Answer

I don't think there is a risk of R.E losing value because of the water crisis here. The reality is that people come here because of jobs and the weather. In my area, houses get listed and sell in a few days, sometimes in a few hours. The demand for homes in good neighborhoods is incredible and folks are making cash offers for $1M+ properties all the time. Time will tell, I suppose, but it's bound to rain here at some point in the future.

Chris Holmes · Answer

it's going to be interesting what they're going to do with this problem, seeing by all accounts they only have a years worth of water left.You only have to look at water levels at lake Oroville to be shocked at how much has been drained.Whether it will affect home prices, who knows. If Australia can weather the storm and keep things stable, then so can CA. They have been in dire straits for years.

Bill Gulley · Answer

Sounds like a great time to buy to me! My question: If a tenant soaks the streets with a garden hose, seems like they mail a fine, if the tenant leaves, is the owner stuck with the fine, may be an unpaid fine that grows into a lien? How are you guys out there covering yourself with tenants running the water?If it's in their name, I can see how they get nailed, what if they skip out? :)

Mike M. · Answer

We don't have a lot of dry RE left in Texas.

Peter Fisk · Answer

The flip side of that could be that if they restrict new housing starts that could cause the values of the existing housing stock to continue to climb even more. Where I live in California prices just keep climbing.

Account Closed · Answer

I bought in Las Vegas in 1994 and was told the lack of water would make my value more profitable. I think they may have built a few hundred thousand MORE units since! LOLActually if water connections are restricted it will only mean that current properties will have more demand and prices will sky rocket even more. Wait till the floods and landslides. Welcome to the Goldilocks economic theory.