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An Update on California Wildfires

As the wildfires in Camp and Woolsey in California continue to rage, local and federal agencies are working towards containing them to avoid further damage to life and property. The fire has already claimed 79 lives with 700 still reported missing, according to the Associated Press (AP). The AP report stated that the fire which burned at least 236 square miles destroyed 12,000 homes.

While it was too early to estimate the damage done by the wildfire, California Insurance Commissioner Dave Jones told AP that to give a perspective, "Northern California fires that gutted 6,800 homes last year resulted in $12.6 billion in insured losses," Jones told AP.

The Impact on Housing

According to the latest data by Realtor.com, the number of homes destroyed in the Camp Fire, which is being seen as the most deadly and destructive fire in California history, is equivalent to 18 months of active listing inventory. "The $3 billion of property within the fire boundaries is equivalent to almost 18 percent of the value of single-family residential properties in Butte County," Danielle Hale, Chief Economist at Realtor.com.

"With more than 12,000 residences destroyed or damaged and only 858 properties on the market in October, its damage has already overwhelmed the local real estate market," Hale said. "Looking forward, insurance dollars pouring into the area will help cover some rebuilding costs, but residents should expect a roller-coaster ride of home prices and rents as inventory gets scooped up by displaced families.”

While the destruction from the Woolsey fire is lower than expected, Realtor.com expects the housing market in this area to slow in the coming months as "local homeowners assess the damage and plan for the future." Realtor.com found that the homes affected in Woolsey were more expensive than the surrounding areas with a median value of $985,000 within the fire boundary versus $685,000 in Ventura County. "This suggests that those affected may have more resources to deal with the impact of the fire, and the tightest part of the housing market, affordable, entry-level homes, will be less affected," Hale said.

Effect on RMBS

While the fires would be having an overall lasting impact on the housing market of these counties, a recent Kroll Bond Rating Agency (KBRA) report analyzing the fire's impact on residential mortgage-backed securities (RMBS) in the area revealed that it would have a marginal effect on RMBS in the area. While collateral concentrations in KBRA's RMBS portfolio were higher in California at 35.6 percent, KBRA noted that exposure of RMBS in the ZIP codes which included evacuation areas was relatively limited as a percentage of the agency's portfolio.

While the California Core-Based Statistical Areas (CBSAs) covering Los Angeles-Long Beach-Anaheim,
Oxnard-Thousand Oaks-Ventura and Chico represent 11.20 percent, 0.76 percent, and 0.04 percent, respectively, of total pool balance within KBRA’s rated RMBS portfolio, the zip codes within these CBSAs where evacuation orders were given represented a much smaller subset of KBRA’s portfolio, the agency said. "Potential impact to evacuation areas include only 0.27 percent of the collateral from properties backing KBRA’s rated RMBS portfolio," KBRA said in its analysis.

However, it pointed out that the true damage and exposure was still unknown due to the " ongoing nature of these wildfires and the speculative nature of this exposure analysis."

"Unlike flood insurance, which is only required for borrowers in flood zones, all borrowers are required to
have hazard insurance, which typically covers fire damage, including wildfires," the analysis noted. "Representation & Warranties (R&Ws) in RMBS typically cover the presence of hazard insurance and damage to the property occurring prior to the securitization closing date."

About Author: Radhika Ojha

Radhika Ojha, Online Editor at the Five Star Institute, is a graduate of the University of Pune, India, where she received her B.A. in Commerce with a concentration in Accounting and Marketing and an M.A. in Mass Communication. Upon completion of her masters degree, Ojha worked at a national English daily publication in India (The Indian Express) where she was a staff writer in the cultural and arts features section. Ojha, also worked as Principal Correspondent at HT Media Ltd and at Honeywell as an executive in corporate communications. She and her husband currently reside in Dallas, Texas. She can be reached at Radhika.Ojha@DSNews.com.
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