Santa Barbara & Montecito Tea Fire-- Will it affect Real Estate Values?

The morning after the Montecito and Santa Barbara Tea fire started (11/13/08 at roughly 5:30PM), I received a call from a potential home buyer wanting to know what affect, if any, the fire would have on home values in the surrounding area. This is a great question, considering our current economic climate, and some of the major wildfires Southern California has experienced in the last few years. Just earlier this year, the Santa Barbara/Goleta area experienced the GAP fire, which forced many residents to evacuate, but thankfully virtually 0 homes were destroyed. The recent Tea Fire was a different story as it burned nearly 2000 acres and the last count was 210 homes, many of them high end luxury-estates in Montecito, the Riviera, and the surrounding foothills.

The real estate market is intimately tied to basic forces of economics, namely supply and demand. The destruction of 210 high-end homes (the majority of the homes destroyed were valued at $2 Million+) in a relatively small community may have a slight impact on supply as one could assume that at least a handful of these homes would probably have come on the market in the next 12 months. I haven't heard if any of these homes were actually actively being listed o the market, though I know several realtors lost their homes. So the big question is will this affect demand for these types of higher end homes? Will the displaced residents choose to locate rentals for the next 2-3 years while they go through the planning, permitting and building process on their existing lot, or will they pick over the current inventory and purchase a home, with plans to sell their destroyed homes as vacant lots. Home builders and contractors in the area will obviously have quite a bit of work in the coming years, and the influx of new potential vacant land (which there is a severe shortage of) is not good news for speculators that had been holding on to their vacant land hoping to see appreciation the next few years. I would expect vacant land prices to take a serious hit, which creates a lucrative opportunity for developers to purchase prime lots for custom or spec home developments. Keep in mind, that we are not being insensitive talking about these opportunities, as the displaced homeowners will receive settlements from the various insurance companies. Also, this potential influx in buyer demand from developers and investors is a necessary boost to potentially mitigate any immediate concern of future wildfires, and the fear that comes along with that.

The community in the Santa Barbara and Montecito area have been extremely supportive over the last week and a half. Many real estate professionals are working to assist displaced residents in finding short and long term rental options, including free moving trucks, free storage at various facilities, and even free or discounted rents for a set period of time. Many owners who have been trying to sell their home vacant are offering these listings to the residents as well for temporary housing. So going back to what will displaced residents do--rent or buy, my take is that many residents will opt for furnished rentals, to wait for insurance settlements before making the decision to rebuild or purchase elsewhere. Will we have some residents move out of the area, probably, as the idea of going through the rebuilding process or moving from a home they have have had for years may simply be too daunting. That said, I think we will have an influx of developers, buyers who want to build custom homes, and other savvy buyers looking for great deals, that will balance any increase in supply.

My recommendation to buyers is to buy sooner rather than later, while the fear and the doubt linger in the air affecting sellers perceptions. I predict an increase in demand in a few months as these homes owners come back into the market and possibly more inventory comes on in the Spring and Summer months. That influx in demand may inflate prices, or at the vary least, eliminate some of the prime opportunities for negotiation and serious discounts on current inventory, especially vacant land.

Feel free to contact me (805) 637-7148 if you would like to discuss this more, or be kept up to date on some of the motivated sellers that are willing to sell at a discount.