California Home Prices Spike as Disasters Drive Away Insurers

The Golden Gate Bridge under an orange smoke filled sky in San Francisco on September 9, 2020. More than 300,000 acres were burning across the northwestern state. Increased frequency of such natural disasters is contributing to insurers departing the state.

California’s housing prices could accelerate even more as the state faces a homeowners insurance crisis.

Home prices in the state have soared over the last year. In February, for example, the median selling price for property was at $784,500, up more than 11 percent compared to last year, according to Redfin data. At the same time that home prices are rising, the state has seen insurance companies stop providing service over cost concerns amid increased frequency of natural disasters.

Housing experts point out that California “tops the list” for climate risk, including when it comes to poor air quality and the high propensity for wildfires.

“In 2024, approximately 9 [percent] of homes in the United States, valued at nearly $6.6 trillion, face severe or extreme air quality risk. San Francisco, [California], holds the highest total value of homes at severe or extreme air quality risk,” according to a realtor.com analysis shared with Newsweek.

“With high risk of wildfire and hot weather, it is not surprising to find markets with the highest total value of homes at risk from severe and extreme air pollutants are predominantly concentrated in California.”

Realtor.com analysts found that about 39 percent of homes in the U.S. that face high wildfire risk are in California, with a total value of $1.7 trillion.

“Specifically, big Californian metros such as Los Angeles and Riverside have the highest total value of homes that are exposed to severe or extreme risk of wildfire,” they pointed out. “In fact, previous Realtor.com research pointed out that median listing price growth rates in high-risk areas have been outpacing the growth in low-risk zones, suggesting higher demand for these risky homes.”

Recent data for example, shows some of the highest-priced homes can be found in places like San Diego and Los Angeles.

But insurance companies are cutting back services in the state and point to a rise in natural disasters as one of the reasons.

The latest company to announce reduced insurance services is State Farm, the region’s largest private insurance company. The move to stop renewing policies will affect tens of thousands of homes. Last year, the company said it would cease offering new policies, amid other companies also announcing that they are curtailing their services in the state.

“This decision was not made lightly and only after careful analysis of State Farm General’s financial health, which continues to be impacted by inflation, catastrophe exposure, reinsurance costs, and the limitations of working within decades-old insurance regulations,” the company said in a statement.

Homeowners insurance is increasingly becoming an urgent concern for homebuyers in the U.S. amid elevated mortgage rates and limited supply of homes that has contributed to a rise in prices beyond the reach of a significant chunk of Americans.

According to Freddie Mac, in 2018, the average annual cost of homeowners insurance stood at a little over $1,081. Fast forward to 2023 and the cost has shot up to more than $1,500, a near 11 percent jump from 2022 and nearly 41 percent higher than 2018.

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