Wildfire threat hasn’t deterred purchases in higher-risk areas

Despite climate risk concerns, buyers have not shied away from homes in fire-prone areas. In fact, prices for homes in riskier areas have grown more than those in lower-risk areas over the last two years, according to an analysis by Redfin. 

Scarce housing supply and high demand, largely driven by those migrating away from coastal cities during the COVID-19 pandemic, helped drive the price of homes in fire-prone areas in April up by 52% in the past two years since coronavirus first emerged, to a median of $550,500. In that same time frame, the median price of homes in areas with low risk rose by only 41% to $431,300. The $119,200 difference in median prices for high and low risk areas, which comes out to approximately 28%, is the largest since at least 2017. In April 2020, the gap was only $56,700 or 18%.

While a large share of homebuyers cite climate risk as a factor in their purchase decisions, the tight housing market of the past two years drove them to prioritize homeownership above all else. 

“For a lot of pandemic-era homebuyers, what has felt much more urgent than avoiding fire danger is finding a home they can afford at a time when inventory is so low and prices are so high,” said Corey Keach, a Redfin real estate agent near Boulder, Colorado, where the Marshall Fire destroyed over 1,000 homes last year. 

Multiple surveys in the first half of 2022 found home prices jumping by close to 20% on a year-over-year basis, with even greater increases in states such as Arizona, Nevada and Utah. Suburban and rural areas in the West are more likely to be deemed at risk for fires due to their proximity to flammable vegetation.

“Suburban homes tend to be more expensive because they’re large, and demand for large homes skyrocketed during the pandemic as Americans sought respite from crowded city life,” said Redfin senior economist Sheharyar Bokhari, in a press release. But for some buyers, the homes they bought still may have come in more affordable even with a price hike if they were relocating from an expensive city, Bokhari said. 

“Pandemic buyers also hunted for deals due to surging home prices, and while fire-prone homes aren’t cheaper on average, buyers may feel they’re getting more bang for their buck because they’re getting more space,” he added. 

Home costs in areas susceptible to fires also historically come in higher due to their sizes and locations near more expensive West Coast metropolitan areas, according to Redfin. The real estate brokerage reported the typical size of a home purchased in high-risk areas in April was 2,000 square feet. By comparison, a typical home purchased in a low-risk area that month measured 1,706 square feet. 

In April, homes in higher fire-risk areas also sold faster, remaining on the market for an average of 16 days compared with 20 days for houses in less fire-prone communities.  

But the tide may be turning. Several cities vulnerable to fires were deemed among the most overvalued in the country according to a recent study conducted by two Florida universities. 

Although home values surged over the past two years near high-risk cities as they did elsewhere, Redfin found that sellers in those communities were now more likely to lower their asking prices compared to other regions. In April, almost 22% of listings in fire-prone regions saw price drops, compared with 19% of homes in low-risk areas. 

“As the housing market cools, sellers are more likely to lower their pricing expectations in places where surging homebuyer demand has caused prices to significantly overinflate — places like the fire-prone suburbs Americans flocked to during the pandemic,” Bokhari said.