What Fires Will Do to California’s Housing Market

The wildfires that burned through much of Los Angeles County earlier this month wreaked havoc across the region, burning down entire neighborhoods and destroying more than 17,000 structures, many of which were homes.

The result of all this devastation, experts told Newsweek, will likely be a worsening of the Golden State’s ongoing housing shortage. This in turn will send prices even higher in what is already one of the most expensive markets in the country.

Why It Matters

Before the fires broke out on January 7, Californians were already struggling with both affordability and availability in the housing market, especially in Los Angeles County. Now, tens of thousands of displaced people are looking for short-term accommodation in the already-strained California rental market while they wait for their homes to be rebuilt—that is, if they decide to stay in the area, and if they can afford it.

Surging demand while inventory shrinks even further is bound to send both rent and house prices skyrocketing at the same time as insurance companies are likely to increase their premiums in at-risk zones to match climbing costs and catastrophe exposure.

A Huge Surge in Demand for Rentals

Lawrence Yun, chief economist at the National Association of Realtors (NAR), told Newsweek that housing shortages normally follow natural disasters due to the destruction and major damage caused by extreme weather events.

“This leads to heightened demand for short-term living arrangements, which drives up local rents,” Yun said.

That’s a phenomenon that has already been observed in California, where, according to Redfin, Google searches for “Los Angeles homes for rent” had jumped 186 percent as of January 15 since the first week of the year.

Hannah Jones, senior research analyst at Realtor.com, told Newsweek that she expects “to see an uptick in rental demand as displaced households, hoping to stay local, look for housing options while they rebuild or repair their homes” in the coming weeks and months.

But rental options are very limited in Los Angeles County, as many residents displaced by the fires are now discovering. An analysis by CoStar Group. Inc. mentioned by Bloomberg, showed that the Los Angeles rental market had a vacancy rate of only about 5 percent—and that was before the fires burned down thousands of homes.

California authorities have warned that the current situation might lead to price gouging in the Los Angeles rental market and have cautioned real estate agents against taking advantage of vulnerable residents. Mike Kobeissi, a real estate agent in La Cañada, became the first person to be charged with price gouging after the fires this week.

A Widening Gap Between Demand and Supply

The loss of thousands of homes will tighten up housing supply in the areas affected by the fires, Oscar Wei, deputy chief economist at California Association of Realtors, told Newsweek. This will bring prices up when housing demand begins to recover in the spring.

This represents a worsening of the existing inventory crisis in California and Los Angeles County, where “the ongoing tension between limited supply and robust demand for housing has kept competition fierce and home prices high” in the past few years, Jones said.

“In 2024, there were roughly 36.1 percent fewer homes for sale in L.A. compared to 2019,” the Realtor.com analyst said. “The recent fires could exacerbate price growth and inventory scarcity as more shopper demand is funneled into fewer for-sale homes.”

While the entire nation has massively underbuilt since the crisis of 2007-2008 compared to the needs of its population, the problem is particularly felt in California, where complex building regulations often delay or prevent new constructions.

“California consistently underproduces new homes in relation to its population size,” Yun said. “Excessive development regulations have resulted in homebuilders preferring other states. This has contributed to high home prices and low homeownership rates in California,” he added. “The recent destruction of homes will exacerbate the housing shortage.”

Jones said she thinks that the fires would have brought up demand while shrinking supply.

“Many displaced households will be looking for a home to buy or rent, which would increase housing competition,” she added. “Additionally, damaged or destroyed homes that would have been listed for-sale in the affected area will now be absent from the market, limiting supply,” Jones said.

Insurance Might Tip Residents Over the Edge

The Los Angeles County blazes are likely to be the largest wildfire insured loss in U.S. history, with private forecaster AccuWeather estimating the total damages and economic loss to be between $250 and $275 billion. While the full scope of the damages hasn’t been determined yet, it is clear that insurance companies operating in the region will have to pay enormous sums to cover affected homeowners’ claims.

Several major insurers in the Golden State have already cut coverage for millions of homeowners living in California’s most fire-prone areas in recent years, leaving residents scrambling for options. Experts fear that insurers might continue dropping policies in the state, or increase premiums beyond what many may afford.

“The wildfires in L.A. could deepen the insurance crisis in Southern California and may lead to higher insurance costs for homeowners,” Wei told Newsweek.

Yun thinks that insurance companies may avoid unpredictable and unprofitable regions “unless higher insurance premiums can compensate for the risk,” he said. “If premiums are capped, then expect more uninsured homeowners in California.”

While the California Department of Insurance has passed legislation requiring insurers to continue covering at-risk zones, “the insurance costs in those area will be higher than what they were in the past,” Wei said.

“Buyers may weigh the cost of going without insurance or may choose to live somewhere else altogether as fire risks are front-of-mind,” Jones said.

According to a report released by Redfin last year, more people left California’s high-fire-risk areas in 2023 than moved in.

Of the 34,170 people who left high-fire-risk U.S. counties in 2023, 17,357—or 50.8 percent—left California, up from 41.9 percent the year before. This suggests that Californians are becoming more responsive to the threat of wildfires, and that more people might move out of Southern California following the L.A. fires.

“The wildfires devastating Los Angeles could be a critical tipping point for risk tolerance among American renters and homeowners,” said Redfin Chief Economist Daryl Fairweather.

“While the country’s disaster-prone areas continue to see more people move in than out overall, behavior has begun to shift in California; the state’s high-fire-risk areas in 2023 saw a net loss of residents, marking a reversal from the prior year. And the Southern California wildfires may exacerbate this trend in 2025.”