What happens to house prices after Colorado’s most expensive wildfire

The recent fires in Boulder County were astounding in regard to location, destruction, and time of year.  Typically, when we think of fire in Colorado we think of the foothills/rural areas and the urban/forest interface in the Spring through Fall.  The recent fires in Boulder changed this thinking.  Will the impact on real estate be different as well?How will the fires impact real estate prices?

What Happened in the Marshall Fire and why was it so destructive?

The Federal Government put together an informative report on what led to the historic Marshall fire.

On December 30, 2021, the Marshall Fire ripped through suburban neighborhoods on the west side of the Denver-Boulder metropolitan area. Spread by high winds and fueled by dry conditions, the wildfire left two people presumed dead, burned more than 6,000 acres, and destroyed more than 1,000 homes, according to news reports.

The Marshall Fire left smoldering ruins in a Louisville, Colorado, neighborhood, at the end of December 2021. I took the photo above in the foothills West of Boulder a few years back.

High winds, even with occasional hurricane-force gusts, are not unusual in this “foothills” region, where the eastern prairies meet the Rockies. The day of the windstorm, atmospheric pressure dropped sharply east of the Rockies, and strong downslope winds followed. At the base of the foothills west of Denver, wind gusts reached 100 miles per hour.

But winds alone didn’t account for the destruction. In the months leading up to this wildfire, climate conditions set the stage for a disaster. The spring of 2021 brought unusually wet conditions, encouraging vigorous plant growth. Starting in June, though, precipitation levels fell below average, and remained well below average for the rest of the year.

 

 

What typically happens to real estate prices after a wildfire?

In prior fires throughout Colorado, there would be a dip in prices as the areas would be considered less desirable in the short term.  Times have changed and the Marshall fire will not follow prior trends.  In Boulder County in December of 2021 there were 111 available homes in all of Boulder county.  The Marshall fire destroyed 1,000 homes along with damaging a substantial number.

 

Why will the Marshall fires impact on real estate be different than prior Colorado fires?

According to a Colorado Sun article, under normal circumstances, it wouldn’t be unusual for a home to be built from scratch in six to nine months, said Paul Goodrum, a professor and head of the construction management department at Colorado State University.

“I think, in this region, you’re probably looking at maybe double that,” he said. “I’ve heard some estimates of maybe up to two years.” Other housing professionals estimated it could take up to three years to rebuild.

Long and short, the Marshall fire will further accelerate prices in the area as supply was already struggling to keep up with demand and the ability to add substantial supply is many years out.  The numbers are astounding:

Available homes: 111

Needed homes: North of 1,000

This leaves the area short 890 homes not accounting for the damaged homes and continued net migration.  All the people who lost homes in the area will not be able to stay due to the limited supply, this will drive up prices in the surrounding areas as well as the demand is distributed throughout the region.  Unfortunately, throughout the metro Denver area houses for rent and purchase were already in high demand so these areas will not be able to fully absorb the new demand without also increasing in price.

 

 

Summary:

The Boulder county fire was astonishing in the destruction that was caused in an urban location in a matter of hours.  Today not even fire areas are immune to the macro forces facing the entire Denver front range including limited supply of houses for sale/rent and supply chain issues (both labor and materials) causing build times to skyrocket.   As a result, prices will continue to notch further gains in Boulder County and throughout the metro as demand will continue to outstrip supply.  Although this is radically different than what has historically occurred, the new pandemic normal is changing even how real estate prices react after a fire.

 

Additional Reading/Resources:

• https://www.climate.gov/news-features/event-tracker/wet-then-dry-extremes-contributed-devastating-marshall-fire-colorado
• https://car-co.stats.showingtime.com/docs/lmu/x/BoulderCounty?src=page
• https://coloradosun.com/2022/01/13/marshall-fire-construction-labor-shortages/

 

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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending.  Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine,  The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.

 

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