FIRE, and Ice.
People are dying from climate change, housing is getting destroyed. We will pay in many ways.
Some say the world will end by fire,
some say in ice.
From what I’ve tasted of desire
I hold with those who favor fire.
With apologies to Robert Frost for cutting his elegant poem in half. The world is not ending, but California is burning again; yes, massive wildfires, driven by Santa Ana winds. This has happened before but never on this scale, at least never this much into heavily populated areas of LA, full of $3.5 million celebrity homes. (Not that either $3.5 million houses or celebrities are better than anyone else.) Since this is happening in Los Angeles, and we have this bizarre division politically in this country, you’d think that some “not small” part of the polity is happy to see southern California burn. The president-elect, who one would assume would have some compassion and interest in making America great would have some constructive things to say about the conflagration in LA, but that is not the business he’s really in. He will be sworn in soon and show where his true interests lie.
We are also at an economic crossroads. Housing and finance are closely related. We are approaching a “normal” looking bond market in the US in that longer term bond yields (20, 30 years) are higher yielding than say 1 and 2 year Treasury yields. I say this is normal but in fact it had really not been the case for most of the last 10-15 years, especially in Western Europe where we’ve seen things like negative interest rates. [Central bankers were suppressing interest rates really since the 2008 “Financial Crisis”.] When I say the bond market is normal that is not to say all is well. In a “normal” market, mortgage interest rates will stay higher, perhaps 2 percentage points higher than comparable US Treasury bonds. People forgot what normal looked like. The economy is still strong, with 4.1% unemployment announced last week, but there is a gigantic market bubble in tech stocks (the Magnificent Seven or Ten, whatever you want to call them.) And we have bubbles in crypto assets like Bitcoin as well. The unraveling of this will harm people, but only financially.
The fires in California are not the end of the world, but perhaps they are a preview, if nothing is done.
I feel great sympathy for the younger generation, more than sympathy: we should act to forestall calamity. Among the more overt current complaints are that the young are saddled with ridiculous educational debt, and that if they want to buy a house, houses are quite expensive and interest rates on mortgages are well above 7%. Meanwhile there are many so called “Baby Boomers” and such that are ensconced in a home where they were able to get a 2.5% or 3% mortgage not 5 years ago. Inflation is always unfair, and fixing education inflation should require more than simple debt forgiveness; the whole way that colleges get money should be fixed. Housing is much more complex. 1 We’ve had crazy housing inflation for many reasons: general inflation, lumber being used up; land being used up. Often places are very popular and people pack in new houses cheek-by-jowl. The Palisades fire of the past week is an area where multimillion dollar homes are sometimes ten feet apart. I know a couple places in California like that and we’ve all seen beach and lakefront areas where expensive houses are jammed up near the water’s edge or the side of a cliff. (Take Florida, please.) Bizarrely, humans love to live either with a view, with acreage, or close to the water. It is not always more dangerous but makes things more difficult and expensive.
The fires in California are not the end of the world, perhaps they are a preview, if nothing is done. One of the huge expenses of owning a house can be insurance, property and casualty insurance, P&C, it’s called. Imagine how expensive insurance will be for the swells that rebuild in Pacific Palisades. I’m sure the future houses will be farther apart. Maybe the new inhabitants will not have insurance. If you don’t get a mortgage - if you pay all cash to buy and build a house - you can forego P&C insurance. Still, you’ll pay property tax, you’ll need water, infrastructure, electricity (unless you go solar). California, the politicians and the people, have already screwed over the insurers and utilities that operate there. Their pockets have already been picked and these firestorms will surely drive a couple insurers out of California and perhaps into bankruptcy. America is the kind of place where you can build a mansion on the top of a cliff and then bitch and moan that people won’t help pay to run water and electricity to you.
How California responds to these crises could be an indication of if we have any environmental leadership in this country. It won’t come from Washington.
We have a “housing crisis” and an almost unstoppable climate change. People in the housing finance business are certainly figuring the possibility of climate/disaster related losses into their calculations2. Both the Democratic and Republican parties have been boosters of too-cheap mortgage money for decades and the sprawl that began, literally, after World War II has run its course. This is a beautiful country but we have ugly-fied and poisoned it. Los Angeles is a beautiful place, but too many people have thought so as well; now ridiculous freeways move people around what is a huge county. LA was really started by the oil industry, not Hollywood.3 How California responds to these crises could be an indication of if we have any environmental leadership in this country. I live in an area that was hit hard by Hurricane Helene, and many people simply want to put it all right back; to “rebuild”. Americans love the idea of land ownership, that is why many people were drawn here years ago from Europe, to be farmers - they were the second, third and fourth sons, or the poor, or the hustlers. Once they own property they think they are on a gold mine, it is quite delusional.
We need to build thousands of houses (apartment blocks, anyone?) Houses are destroyed by disaster and in many places, both rural and urban; the houses have simply gone to hell. We need to build just to replace houses that are lost. Who will pay for all of this? People have already been accelerating their purchases of things like washing machines in anticipation of Trump’s tariffs. We import lumber from Canada. Trump wants to put tariffs on everything. We have departments with names like HUD or the EPA, but where the rubber meets the road is choices made by individual property owners or often corrupted local councils.
There has been a lot of political finger-pointing, mostly from the right, about the California fires. Since the weirdos and religious fanatics don’t believe in climate change, there has to be someone to blame. Of course, in hundred mile an hour winds firehoses don’t even shoot straight and airborne firefighting was suspended for many hours. These fires have been fought heroically and yet people have died, surprisingly few considering. If we are to survive climate change, and the many more challenges facing our world, the US needs to act like a society. The world is not run by billionaires. Perhaps the best art collection in California is in the Getty Museum. J.P. Getty was a billionaire oilman and it was nice of his heirs to build such a fine museum, but ultimately it is the society, the fire departments, that will protect his treasure and ours.
Here’s one pretty good take on housing finance: https://awealthofcommonsense.com/2025/01/is-the-housing-market-is-becoming-a-problem/
Another take on the subject from the same author-
https://awealthofcommonsense.com/2024/10/the-biggest-risk-in-real-estate/
I’m not one of those people who blame climate change on fossil fuel companies. We started burning coal on an industrial scale since we first build railroads and steamships, and everyone who ever rode on a train, plane or automobile is just as guilty as everyone else.