Horrific purgatory': How fires & floods have upended the 2018 housing market

Headshot of Myles Ma, CPFC


Myles Ma, CPFCSenior ReporterMyles Ma, CPFC, is a certified personal finance counselor and former senior reporter at Policygenius, where he covered insurance and personal finance. His expertise has been featured in The Washington Post, PBS, CNBC, CBS News, USA Today, HuffPost, Salon, Inc. Magazine, MarketWatch, and elsewhere.

Published|8 min read

Policygenius content follows strict guidelines for editorial accuracy and integrity. Learn about our editorial standards and how we make money.

Natural disasters caused historic damage in 2017. Hurricane Harvey caused up to an estimated $59 billion in flood damage in Texas, according to CoreLogic, a property data company. A series of wildfires destroyed thousands of buildings in California.

These events upended real estate markets in the areas they affected, and made buying or selling a home, already a stressful process, even more unpredictable. Here's what the search for a home is like after disaster strikes.

What buyers should know

Buying a home in Sonoma County, California, was hard enough before the wildfires. There was high demand for a limited housing stock. Wildfires diminished that stock dramatically.

The fires destroyed thousands of homes that were on the market. Many owners of the properties that remained converted them into rentals for people the fire displaced. Many victims had help paying rent through their homeowners insurance, which generally covers temporary housing if a home is destroyed. The assistance coaxed rental prices higher.

Brad Zigler, an editor for a wealth management magazine, started looking for a house in the area soon after the fires for his in-laws, who lost their home to fire. They wanted a home to live in while they decided on whether to rebuild. Zigler planned to buy a home, then rent it to his in-laws, who are in their 80s.

"They wanted to remain in Sonoma County," Zigler said. "It's been their home for decades."

Real estate agents initially listed homes at pre-fire prices, sparking bidding wars. Prices escalated. Zigler quickly learned the new rules: If you see a property you like, make an offer, preferably quickly, preferably in cash.

Competition has been fierce, with developers and speculators swooping in to buy properties, Zigler said. His in-laws have the luxury of time, since Zigler is putting them up, but others may have to make compromises.

"Perseverance is necessary," Zigler said. "A little creativity is necessary in your financing approach. And you need flexibility."

But by April, Zigler and his in-laws still hadn't found a house. They opted to rent instead.

Beware of build costs

Cash is king in wildfire-affected areas, said Mark C. Spaulding, a real estate agent with Pacific Union International in Santa Rosa. But buyers also need to be ready if their properties need work.

"Along with shortage of inventory, we are having a need for a large amount of building and construction to be occurring here for the next couple of years," Spaulding said.

There is a limited supply of labor and building costs will rise as a result, Spaulding said. Buyers could lose money if they don't account for building costs.

Fire insurance

Anyone looking for a home in a wildfire-affected area should speak to an insurance agent to talk through the risks and costs, said John Venti, a real estate agent for Redfin in Santa Barbara. The availability and cost of insurance has become a big concern for potential buyers.

The California Department of Insurance received numerous complaints that homeowners insurance in wildfire-prone areas was increasingly difficult to obtain and afford, even before the 2017 fires. The department recommended in January the state legislature act to make it easier for homeowners to get insurance if they take steps to reduce their wildfire risk like managing nearby vegetation.

No time to think

Hurricane Harvey has had a similar effect on real estate in the Houston area. Morgan McCord closed on a home Feb. 26 in Pearland, about 20 miles south of Houston, after a two-and-a-half-month search.

"It was pretty frustrating," she said.

Her family of four, plus a dog, had outgrown their apartment in the Clear Lake section of Houston. But houses were going fast after the hurricane. McCord would spot a house one day and there would be an offer on it the next.

Federal aid helped raise demand. The Department of Housing and Urban Development made mortgages available with no down payment through the Mortgage Insurance for Disaster Victims program. Houston residents qualified if their homes were destroyed or heavily damaged in the storm.

After losing out on a few houses, the McCords found a home listed at $220,000 they were able to get for $216,000. The sellers said they had a backup offer, but McCord wasn't sure if that was a negotiating ploy.

"Right now if you're looking to buy, you don't have time to think about if you love a house or not," she said. "If you like a house you have to put an offer on it or it's going to be gone the next day."

Ed Wolff, president of Beth Wolff Realtors and chairman of the Houston Association of Realtors' governmental affairs advisory group, is still bullish on the Houston market because of the jobs available.

"You can't pick up the refining and energy and oil and medical and move it somewhere else," Wolff said.

Housing prices took a dip right after the hurricane, but quickly rebounded, especially for newer homes that didn't flood, Wolff said. These properties are selling quickly because the people whose homes did flood are looking for places to live.

A seller's market (if you didn't flood)

Leslie Welby (who is Morgan McCord's aunt) listed a home near the Johnson Space Center in February. She bought the house from a neighbor who was moving to Slovakia.

"I just wanted to make sure I met the people that were going to be my neighbor, because I live two doors down from the property," Welby said.

She decided not to work with a real estate agent and was unaware of how hot the market was for undamaged homes. Welby listed the home for free on Zillow, and the calls started coming in. She estimates she got eight calls a day from investors alone. She listed the property at $168,000 on Feb. 10 and was offered $170,000 on Feb. 15.

"It was very easy," Welby said.

But many houses in Houston were damaged by the hurricane. For their owners, the selling process has been difficult.

'A horrific purgatory'

Flooding ruined Cynthia Hand Neely's Houston home. She and her husband renovated just before the storm, in hopes of selling it to fund their retirement. It's now for sale at lot value.

The home is not in a flood plain, but like many Houston homes, it flooded when the Army Corps of Engineers released water from a nearby reservoir to relieve pressure on a damn.

"When they released the water, that's when thousands of us flooded," Neely said.

Neely had flood insurance, but now she and her husband must decide what to do with the proceeds.

"It is such a lot of money and it's like going to Vegas," she said. "Are we going to put all the money we get from our insurance claims back into this house gambling that we'll be able to sell it at a later date at enough of a profit to make it worthwhile?"

Neely is 68. Her husband is 71. They're not sure they want to put the time into restoring a house if it won't return any value. She's watched with worry as other homes in her neighborhood that flooded sell for less than expected.

It took weeks for the couple to find an apartment for themselves and their two Labrador Retrievers. Apartments and hotels are full of people who are also displaced. And while they received insurance money, the Neelys are still paying property taxes and utilities to keep the lights on to show the house.

"It's just a horrific purgatory Houstonians are facing right now," Neely said.

Neely and her husband gave themselves until February to sell the home at lot value. If that didn't work, they would restore the house. But they found mold in the house, which "catapults restoration into a whole other price stratosphere," she said.

As of April, they have an offer on the property for lot value, but the buyer has come forward twice before without following through. The lease on their rental ran out at the end of March, so the couple is living there month-to-month until they can find somewhere else to rent.

And, she warned, this could happen again, unless Houston shores up its infrastructure against another flood by building another reservoir.

"Houston has reached a point now where no place is really safe until they do something," she said.

Consider elevating

Even homeowners who didn't see flooding should still get flood insurance and be aware of the flood risks in their area. If they do purchase a home in the flood plain, they may want to take steps to mitigate future damage, like elevating their home, as Wolff is doing.

Wolff's house took on three feet of water. He's elevating it six feet as he expects Congress to raise flood insurance rates when it reauthorizes the National Flood Insurance program, which is set to expire at the end of July. If prices rise enough, the cost of elevating a home may prove worthwhile.

Recovery in sight

Real estate agents are actively recruiting sellers in California's wine country, said Jill Silvas, vice president of corporate services for Pacific Union. The market was active immediately after the fires and she expects it to get even busier now that spring has arrived. She expects a wave of new buyers as people who rented houses while waiting to rebuild their homes decide to simply buy something new.

Silvas expects the tourism industry, the main economic driver in the region, to recover as well. Most of the vineyards were unharmed and are beginning to look like they did before the fire, Silvas said. Tourists, and buyers, should come back with them.

"Our communities are really strong and the resilience shown after the fires was incredible," she said. "These are amazing places to live."

Compare rates and shop affordable home insurance today

We don't sell your information to third parties.