What’s a house in LA really worth?

Southern California houses are sitting on the market. Part of the reason is physical climate change.

Last week, David Burt of DeltaTerra Capital—who predicted the 2008 crisis—told Axios Senior Economic Reporter Courtenay Brown that a “major paradigm shift” in real estate markets is taking place as physical climate liabilities begin to be accounted for. Brown pointed out it would be difficult to persuade anyone watching financial markets right now that a crisis is underway. “Stock markets are at an all time high,” she said. Burt replied that property prices were tanking in Southern California as well as on the west coast of Florida, and that central bankers were not adequately paying attention to these regions. “I think we’re probably two years into a seven or eight year repricing cycle,” Burt said.

Wildfire risk remains high for Southern California this month, according to the latest National Significant Wildland Fire Potential Outlook. There’s an above normal chance of large fire activity across the area from the mountains to the west, because spring and summer in Southern California were both warmer and drier than usual. The mountains around LA are bone dry and bursting with fuel in the form of high grasses. As more Americans are learning, fire risk there surges when hot Santa Ana and Diablo winds blow—as they are likely to do this month.

But Burt isn’t focused on immediate disasters. His point is that long-term property values and long-term credit risks buried in loans created against those values are beginning to reflect climate reality in particular regions, after a very long period of mispricing. One of those regions is Southern California.

Here’s the reasoning: Historically, even cataclysmic storms or fires didn’t change much about the long-term value of real estate. Insurance was available and reasonably priced to pay for damages, and government assistance came sailing in to fix the situation. That secure, stable context has now changed, because the climate is changing.

Following the November 2018 Paradise/Camp fires, insurers paid out more than $12 billion in losses, wiping out years of profits. Insurers began exiting climate risky markets in California where it didn’t make business sense to them to operate—their business, after all, is just pooling premiums and diversifying them, so that risks at an aggregate level can be covered. You can think of these insurers as sending out warning signals, but it’s important to remember that the whole “canary in a coal mine” idea includes the death of the canary.

Those insurers that remained charged more: California insurance premiums went up the most in the nation in the first half of 2025, with premiums in Los Angeles up 9 percent in six months and 19.5 percent year-over-year. (Increases were higher in California than in Florida this year.)

Think of a piece of real estate as an asset that, if you were renting it, spins off a certain amount of income each year, minus maintenance, taxes, and insurance. If insurance costs go up, the net income associated with a property goes down. That affects property value in the eyes of an investor, who will assume that those insurance costs are going to continue climbing. A rational investor will buy the property only at a lower price that will result in the level of income the investor expects. Sellers have to take less or simply stay in place, unable to sell at the price they want.

California has required insurance companies to renew policies in fire areas for a year following each blaze, but these days those moratoriums are ending. Many Californians have been forced to buy insurance from the state’s insurer of last resort, the FAIR Plan, which provides expensive and narrow coverage.

Burt says the number of listings in Southern California has gone way up. Right now in Los Angeles, demand has plunged and homes are sitting on the market longer than they have in at least a decade:

Los Angeles real estate agent Corrie Sommers told her video audience recently that the LA market was slower in August than it had been since property figures tracking began in the 1980s. “We have seen a huge softening across Los Angeles,” Sommers said, at the same time that fewer properties were reaching the market compared to the month before—sellers are apparently delisting in huge numbers, or simply waiting for a better market to magically emerge. On average, houses in Encino are taking 75 days to sell. It takes 52 days in Sherman Oaks and 69 in Brentwood. Even in desirable Santa Monica, houses are sitting for 35 days. And in order to sell, nearly 20 percent of sellers had to reduce their price. Longer to sell. Higher price reductions. This is a soft, decaying market.

Where you stand on all of this depends on where you sit. From Gov. Gavin Newsom’s perspective, the health of his state’s economy depends on investors believing that there is no insurance crisis in California. That’s why he told former President Bill Clinton last week that the state’s “sustainable insurance strategy,” which allows insurers to pass along reinsurance costs to policyholders and use climate models to predict future physical climate risk, had prompted four insurers to come back into the state. He’s hoping that reforms will allow insurers to more accurately price risk, and get rate increases approved more quickly. He needs the real estate marketplace in his state to continue to spin. To continue to appear to spin.

Gov. Newsom has a tough task. Private insurers are not the whole story, because so many Californians have been forced onto policies issued by the FAIR plan, which is teetering on the brink of insolvency. That’s after a $ billion emergency assessment on member insurers was carried out earlier this year. The FAIR Plan’s ongoing health now relies on more periodic industry-wide assessments and its ability to secure additional credit. The FAIR Plan’s total exposure is $650 billion, which is 42 percent higher than a year ago, and it is carrying a record number of ~610,000 policies.

To keep claims costs down following January’s Palisades fire, the FAIR Plan didn’t provide coverage for smoke damage—which turned out to be illegal.

Private insurers will continue to be wary and distant in dealing with California (especially the larger, better-informed ones). Some homeowners may have trouble affording the increasing premiums the still-standing insurers are exacting, including the high-priced FAIR Plan charges. And the larger market is beginning to reprice homes. The bubble could burst all at once.

From Dave Burt’s perspective, what’s happening in Los Angeles—home prices sinking—is predictable. The supply of houses on the market is not being cleared quickly because those houses are, actually, overpriced. Sellers’ prices are not yet adequately reflecting the burden that higher insurance costs (and thus a limited universe of possible buyers) pose for these houses. If the entire gap of mispricing suddenly closes, the shock will have major effects on availability of credit and the value of mortgage-backed securities that include mispriced loans—and these effects will ripple out through the larger economy.

Burt thinks the Federal Reserve should be paying more attention to this looming economic crisis. He’d like Fed Chair Jerome Powell to “look away from the aggregate and start looking at the regions,” including LA, where mortgage delinquencies and unemployment are rising as home prices fall. He points out that the credit risk associated with these mortgages is now sitting on Fannie Mae’s and Freddie Mac’s books. “Even though this [crisis] is more regional [than the Great Financial Crisis],” says Burt, “it’s still something that’s pretty terrible.” He wishes we could prepare. Otherwise, he says, we’ll see “disorderly results” similar to what happened in 2008-2011.

Hold on to your hats. And, I guess, your houses—if you can.