High winds and dry conditions have led to some of the most destructive fires in Los Angeles’ history. A series of wildfires erupted on Jan. 7, 2025, and have since scorched over 57,000 acres and more than 16,200 structures, according to the California Department of Forestry and Fire Protection (Cal Fire) website.
The devastation has had a significant impact on the region’s housing market, displacing residents and, based on a new report from the Realtor.com economic research team, putting more than $40 billion of real estate value at risk.
“We have never had such devastation in Los Angeles. We are truly in uncharted waters,” Steve Frankel, a real estate agent with Coldwell Banker Realty based in Beverly Hills, California, wrote in an email. “Seeing friends and clients lose their homes and try to navigate this market has been extremely challenging.”
Fortunately, relief may be in sight, the Santa Ana winds that fueled the wildfires for weeks finally eased on Friday, Jan. 24, and a cold front arrived Saturday, ending an unusually long period of dry weather. On Monday, Los Angeles County saw rain and may continue to experience showers, which will help ravaged vegetation recover and benefit the fights against wildfires.
Although firefighters are still working to extinguish the blazes, which are more than 90% contained, here’s a look at what’s happening in the LA real estate market.
— LA housing inventory and rebuilding efforts
— Home prices will likely increase
— Rent prices surge
— LA real estate market predictions
[Can You Build a Fireproof Home?]
LA Housing Inventory and Rebuilding Efforts
The loss of residential real estate will undoubtedly affect the LA housing market. Since the region was already experiencing a housing shortage, the impact is even greater.
Between 2013 and 2023, Realtor.com noted that the area added roughly 290,000 new households and 107,000 single-family building permits, leaving a gap of nearly 200,000 homes.
According to the California Association of Realtors, the loss of thousands of homes will tighten the housing supply in affected areas and surrounding neighborhoods, eventually putting upward pressure on home prices in surrounding neighborhoods as housing demand begins to recover.
As of December 2024, unsold inventory in the Los Angeles metropolitan area was 2.9 months’ supply at the current monthly sales pace, the realtors association reported. The months’ supply is a ratio that indicates how long it would take to sell all the homes currently for sale at the given sales rate. A more balanced housing market typically has a six-month supply.
The Golden State is no stranger to rebuilding after wildfires, but it could take time to bring lots back to buildable form. California’s fire codes require fire-resilient construction in high-risk fire zones. As the region starts to rebuild, increased demand could put stress on manufacturers, shippers, distributors and retailers.
“Recovery will depend heavily on how quickly rebuilding efforts can take place and how well the approvals and permitting processes adapt to the urgent need,” wrote Sean Roberts, CEO at Villa, a California-based off-site homebuilding platform. “Without significant improvements to streamline approvals, it could take years for inventory to recover meaningfully.”
[READ: How Climate Change Could Impact Your Home Value]
Home Prices Will Likely Increase
Similar to other regions across the country, the housing crisis has been an issue for Los Angeles thanks to high home prices and rents, as well as low inventory. As of December 2024, the median sold price for an existing single-family home in the LA metro area was $815,500, according to CAR.
“We are seeing every home on the lease market getting high prices and multiple offers,” Frankel said. “Thousands of families are in immediate need of a home.”
However, economists say the overall impact on home prices will take time to emerge.
Selma Hepp, chief economist and executive of research and insights at CoreLogic, and her team noted that home prices may see two opposing effects, which will take longer to observe and depend on the size of the destruction.
Hepp says the market could see relatively faster home price growth in surrounding markets as households who lost homes contribute to homebuying demand, or it could see slower price growth as damaged homes or remaining lots are sold.
Homes that are rebuilt on damaged lots are typically larger and more expensive, which could add to price pressures but also decrease affordability for existing residents, she explains. Home price growth and homebuying demand may be slower in the long term in areas with persistent and intense natural disasters.
“Unfortunately, natural disasters tend to put a lot of inflationary pressures on the housing market and the local economy, which currently comes at a very inopportune time given the Fed’s struggle with reeling in inflation,” Hepp wrote in an email. “Nevertheless, long-term impacts on local markets are driven by persistency and intensity of natural disasters and proximity to jobs and urban areas in case of smaller housing markets.”
Oscar Wei, deputy chief economist at CAR, says the impact depends on where you look. For example, if you compare the impacted areas to the state, it only affected roughly 3%-5% of housing stock, which won’t make a significant impact on home prices at the state level, he says.
“At the state level, the upward pressure on prices will be minimal. But if you look at a small area, like the LA market, then the impact may be a little bit more,” Wei says. Also, in areas where more homes were lost, such as Altadena and Pacific Palisades, many people may not want to go back into that area right away, according to Wei.
“You may see some slowdown in price in the next three months or so,” Wei says. “As we move into the homebuying season, which is in April, you’ll probably start seeing those numbers climb up.”
And as we approach the traditionally busy spring homebuying season, Wei estimates the LA region could see a 1% increase in prices in some areas. In the longer term — about a year to a year and a half — the area could see as much as a 5% increase in prices on newer homes.
“Plus, of course, not everyone is going to finish building at the same time, so you’re still going to see some tight supply in the area,” Wei adds. “So I wouldn’t be surprised to see a 5% increase on top of the usual increase in those areas.”
Rent Prices Surge
One of the biggest challenges for displaced residents is finding an affordable place to live. According to Redfin, the search term “Los Angeles homes for rent” jumped 186% as of Jan. 15, since the first week of the year. There are also claims that property owners are increasing rents due to higher demand for housing.
The median asking rent in the Los Angeles metro area was $2,780 as of December 2024, Redfin reported, but a Washington Post analysis of listings data from RentCast found that LA County rents jumped 20% two weeks after the wildfires broke out, compared to two weeks before. Rents in some parts of LA increased by more than 200%, which is illegal.
According to the California Governor’s Office of Emergency Services, price gouging, when businesses raise their prices more than 10% during and after an emergency, is illegal in California.
“The impact of the wildfires on multifamily rents will ultimately depend on the number of housing units that are lost,” wrote Carey Heyman, managing principal of the real estate industry at CliftonLarsonAllen, in an email. “A significant decrease in housing units will reduce the vacancy rate, which will regrettably result in higher asking rents.”
[What Homebuyers Need to Know About Climate Change]
LA Real Estate Market Predictions
The California Association of Realtors predicts the devastation caused by the wildfires will lead to a pullback in housing activity in the LA market and home sales in the immediate areas will slow in the near term. While housing demand in the affected cities will take time to recover, the overall LA market should begin to bounce back later in the spring homebuying season.
Affordability challenges will be another concern. While home prices are expected to rise, so will insurance costs.
Financial services company Moody’s recently released an analysis highlighting the financial impact of the wildfires in California. According to their findings, the fires are expected to be the costliest in the state’s history, with insured property losses likely to go as high as $30 billion.
“Higher insurance costs will add to already high operating expenses, which could deter new development,” Heyman wrote.
As for displaced residents, it will be a tough road ahead.
According to Roberts, some residents will turn to temporary housing solutions, while others may leave the area entirely. “We’ve seen several people interested in rebuilding with an ADU rapidly with off-site construction first — to be able to get back on their property and into their neighborhood — and then rebuilding their primary residence over a longer period,” he wrote.
More from U.S. News
What Are Climate Migrants and Where Are They Moving?
Is My Rent Still Due if I Experienced a Loss from a Natural Disaster?
How to Repair Your House After a Fire
How the LA Wildfires Will Affect the Housing Market originally appeared on usnews.com
