While the fires have been contained, the effects on the SoCal housing market will last for years
While the wildfires that ravaged Southern California for the first two months of 2025 have been contained, the effects on the SoCal housing market will last for years, according to one local mortgage broker.
More than 59,000 acres of California burned during this year’s wildfires, with some remaining fires still burning in central and eastern California. The SoCal fires have been contained, but the reconstruction of the housing market will take years.
Matt Kingsborough (pictured), the regional sales manager for Planet Home Lending, has worked in the California market since 1997. He believes mortgage brokers will be facing a damaged market in SoCal for many years.
“It’s going to be a very long process for these individuals to rebuild,” Kingsborough said. “Some of them will get permits in a year if it is a very easy permit process. That’s going to depend on whether the land has any issues. But most permits are going to take at least two years to obtain.”
Once permits are approved, Kingsborough said building could begin within six months. However, because many homes in the area are unique builds, the process will still be slow.
“Potentially, it could be five to seven years before you really see redevelopment of these areas,” Kingsborough said.
Will lenders be willing to finance reconstruction?
A significant reconstruction of the SoCal market will likely take years, if not decades. According to the California Department of Forestry & Fire Protection, almost 48,000 acres of land were burned during the three largest Los Angeles-area fires in Palisades, Eaton and Hughes.
Despite the availability of advanced wildfire risk data, many Los Angeles homeowners were caught off guard when the recent Eaton Fire destroyed thousands of homes outside designated fire hazard zones. https://t.co/p0jHgqBQhh
— Mortgage Professional America Magazine (@MPAMagazineUS) February 28, 2025
Part of the reconstruction will be revisions to the zoning of some of the destroyed properties, according to Kingsborough.
“Some of these lots are fairly significant in size,” Kingsborough said. “Many of these properties are one- or two-acre plots of land. When construction starts ramping up, people are just going to sell the land off.”
This sets up the zoning issue and how it relates to mortgage brokers. Kingsborough notes that zoning commissions may require the land to be used for multi-family properties, which he believes could provide brokers and lenders with more options.
Because some of the homes were valued at $20 million or more, it may be challenging to find lenders willing to finance the construction of single-family homes at such high prices.
“As a single-family home, that gets into some specialty classes of lending there,” Kingsborough said. “There are probably only a handful of people who are really good in the construction to perm side when you go above a conforming or high balance conforming loan that does construction to perm lending.”
Kingsborough believes that not only would the lenders and brokerages that can help rebuild high-value single-family homes be limited, but even those that can help might not be willing to take on the associated risk.
“It’s going to be interesting to see their appetite for risk and how much exposure they want in that area, from rebuilding and taking the risk on the financial side,” Kingsborough said. “So, I believe you’re going to see more frustration, and you’re going to see longer times to rebuild.”
The costs of rebuilding may be too great for some homeowners
Kingsborough said the fallout from the wildfires has slowed down the housing market in SoCal. Many borrowers with damaged homes are still holding mortgages.
“If you don’t have a home that’s physically there, but you still have your mortgage because your home is going to be rebuilt, you can’t refinance,” Kingsborough said. “If you lose 6,000 structures, the resale of those properties will dramatically decline from that. It has affected the ability for mortgage brokers and independent mortgage bankers, and anyone in the lending space, to be able to go through and help those individuals.”
Another issue hanging over the entire reconstruction is insurance. Many companies won’t insure properties in fire-prone areas, which leaves the insurance of those properties to the state-sponsored California FAIR Plan. Kingsborough said the expenses with the FAIR Plan policies also add to the exorbitant costs of rebuilding.
“I own a home in Northern California, and I have to use the California FAIR plan,” Kingsborough said. On a $400,000 home that is 1,100 square feet, I’m paying about $2,800 a year. And that doesn’t include walls-in insurance. So if you have a home that’s 5,000 square feet, that’s $3 million, you’re looking at $15,000 a year.”
Kingsborough said another challenge is the nature of the rebuild. Unlike building a subdivision where houses can be similar, these rebuilds will be unique, adding to the cost. Even if the insurance costs are manageable, with limited contractors in the SoCal area, the cost of rebuilding will be extremely high.
“It’s going to cost $1,000 a square foot or more, because there are only so many general contractors available,” Kingsborough said. “What are building costs going to look like when you’re building 1,000 unique homes at a time in an area. You’re doing all individual buildings that take a lot of specialty work.”
All of the rebuild is on hold because cleanup still hasn’t taken place, according to Kingsborough. He also notes that environmental studies will need to be conducted before construction can begin. All of these factors are leading to a housing market that will challenge mortgage brokers for a long time.
“I think there is frustration setting in because now the aftermath has set in,” Kingsborough said. “But we need individuals to be able to get back into their homes. There are human lives at stake. But it’s going to take years for the area to recover.”
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