California Drought - Impact on Housing Prices

[Keith Meyer]

With 2018 adding up to be yet another drought year in California, I'm surprised I don't hear more concern from real estate investors on the potential impact of the drought on housing prices.

I see this as a two factor problem: wildfire risk and water supply shortage. 2018 has been another bad year for wildfires, and we're seeing the impact play out right now unfortunately in Ventura County and NorCal. Sustained periods of wildfires destroy existing homes, requiring expensive rebuilds, and raise the overall cost of home ownership through higher hazard insurance premiums. I know other areas of the country like Houston are seeing this play out in a different way through hurricane damage and higher flood insurance rates.

I'm not as clear on what the long term impact of the potential water supply shortage looks like. Maybe the agricultural industry is forced to relocate to states with more available water supplies? Maybe population inflow is controlled to stabilize demand? Maybe water bill rates are drastically increased, again increasing the overall cost of home ownership in California? Jason Hartman has some interesting thoughts on this in the article below.

https://www.jasonhartman.com/californias-drought-c...

Again I'm surprised I don't hear this topic discussed more often in local real estate circles. Would love to hear the opinions of local investors on this forum.

[Chris Mason]

I've never heard anyone say "oh I think we're going to back out of buying a home because of the drought," so I don't think there's any impact on demand. People call a company installing astro turf instead of a landscaper, that's really it.

After the Santa Rosa fires, we saw area rents spike suddenly. No surprise, supply and demand.

After the Santa Rosa fires, we saw virtually no one inquiring about FHA 203(h) even after we put it out there. All the local agents knew/know about it too, because I wasn't the only one putting the word out. Consumers simply had no interest. That was a surprise.