Fires and fallout
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Good morning. We’ve had a few requests for a post on the fires, so here it is. Our first thought is probably yours as well: We’re hoping for the best -- minimal loss of life, and minimal damage to property.
Though we are hesitant to go straight into an economic discussion of such a disaster, this is an economic blog and we sense some interest.
Random thoughts: It is possible the fires will cause a slight, temporary change in the supply-demand dynamic in Southern California real estate -- that is, marginally more demand, marginally less supply. At present there are 157,000 homes for sale in the five counties most affected (Inventory levels from Bubble Markets Inventory Tracking: Riverside, 32,000; Los Angeles, 59,000; San Bernardino, 23,000; Orange, 20,000; San Diego, 23,000). In those five counties, sales last month totaled 11,800 homes. Remember, not everyone who loses a home will run out and buy one; and not everyone who loses a home will stay in the area; some of the burning homes are vacant. Another caveat: Throughout the affected areas, the fires will cause a temporary freeze on all home sales activity -- very few people will go to open houses this weekend in the affected areas.
Economic impact: Generally speaking, quick natural disasters cause a short-term increase in economic activity. People flock to Home Depot and Wal-Mart to buy emergency supplies, the government spends a lot of money, insurance claims are paid out, houses and businesses are rebuilt. That said, Gov. Arnold Schwarzenegger is warning that this disaster will cost the state some economic activity.
Big-picture longer term fallout: It’s possible the fires will represent a ‘tipping point’ of sorts that will cause governments to pause and reconsider the wisdom of heavy development in dry, fire-prone areas in the Southwest. We consider this unlikely -- central planning and decision-making are not big factors in the American economy. An event of this magnitude, though, could make it more expensive, and thus less attractive, to build in fire zones -- through higher insurance premiums.
Your thoughts? Insights? E-mail story tips to lalandblog@yahoo.com
Photo Credit: Los Angeles Times