What Will The LA Wildfires Do to Housing, Rental, and Stock Prices?
Here's how savvy investors are approaching the event.
What Happens to the LA Housing Market After Wildfires Are Extinguished?
Los Angeles is the second-biggest city in the U.S., but it has the second-largest housing shortage in the country!
Unfortunately, the shortage may now affect an additional 360,000 residents forced to evacuate their homes as wildfires swept through Pacific Palisades, Malibu, Eaton Canyon, Woodland Hills, Hollywood Hills, and other parts of the San Fernando Valley.
As an Angeleno, I see the devastation up close and personal. It’s heartbreaking to see families displaced. And in the coming months, as many search for new homes and rentals, they’ll battle increased housing demand in a city that already struggles with a low housing supply.
So, What Happens to Rental Prices?
With more than an estimated $135 billion in damages, rebuilding the affected communities will take time and money. Meanwhile, economists say rental growth is expected to double or triple in desirable neighborhoods as families seek shelter.
The median rent in Los Angeles is already $3,000 a month—52% higher than the national average—and the expected rental increases mean many renters will face additional cost burdens in the coming years.
How to Prepare and Protect Yourself From Illegal Rental Increases:
If you’re a renter, here are some essential facts to know:
In California, landlords can’t increase your rent during your lease term unless the contract explicitly says so. I recommend double-checking your lease agreement now.
If your agreement allows increases during your lease and the landlord raises the costs, they are legally required to give a 30-day notice before it’s enforceable. Remember, if the increase is more than 10%, they must give you a 90-day notice.
California has laws regarding rent control that landlords must follow. I recommend getting familiar with them to prevent illegal exploits. You can review them here.
What Happens to Housing Prices?
Home prices aren’t expected to behave much differently.
Rising demand for homes and a lower inventory will affect home prices, probably in the same way they’ll impact rental costs. However, two additional factors will affect housing prices in a way that rentals won’t: property insurance and building permits.
Property Insurance:
In 2022, insurance companies dropped policies from thousands of California customers due to the risk of natural disasters. I was among that customer group—it sucked! Finding property insurance after that wasn’t easy, and the few remaining companies raised insurance premiums by an average of 34%. Unfortunately, the latest wildfires will probably exacerbate this trend.
On the bright side, new California rules require large insurance companies to cover a minimum number of policies in the state. But unfortunately, they can further increase premiums as much as they want.
Of course, the rising insurance costs could have a snowball effect and raise home prices overall.
Building Permits:
Many communities, including Malibu and Pacific Palisades, need to be rebuilt. However, some areas, like Malibu, have a lengthy permitting process. On average, getting a building permit in the area takes 3 to 5 years. At that pace, rebuilding the entire community could take decades. Undoubtedly, residents won’t stand for that.
So, I’m sure lawmakers will find a way to shorten the permitting process and speed up the building timeline. Still, this is likely to put pressure on housing availability, which can increase the prices of homes left on the market.
*Resources: Where to Find Food, Shelter, and Other Help If You Have Been Affected:
If the wildfires have impacted you or someone you know, you can get help from the Los Angeles Homeless Services Authority (LAHSA). Countless businesses are offering free shelter, food, healthcare, and more.
LAHSA posted a comprehensive list of companies supporting wildfire victims. You can find those resources here.
How to Invest and Trade With Current Events
While current events like the LA wildfires are catastrophic and utterly heartbreaking, savvy investors are still investing—that’s the truth.
Investors strategically invest in current events because they know they can make sizable returns in a short period of time.
Here’s an example:
The S&P 500 returns an average of 10% per year. But on Friday, I invested $2,000 in companies related to LA’s wildfires and made 10% in 2 hours.
