I’ve been asked quite a bit to talk about what’s happening with PG&E. It’s mind-blowing to think close to one million households have had spurts without electricity lately in California. I don’t think anyone saw this curveball coming, so let’s talk about it. Please pitch in your thoughts below too.
Here are a few things on my mind.
Prolonged vs isolated incident: Whenever something changes in a market we tend to immediately ask about the impact, but the truth is we don’t always have answers – especially at first. It’s important to remember a few power outages aren’t likely to alter the perception of sellers and buyers in a market. But if we begin to see a prolonged issue, then that’s a different story.
The market will adapt: Generators haven’t been easy to find in the Sacramento area despite all the radio ads, but at some point if power outages become prolonged the market will simply adapt and generators will become commonplace. Thus properties with some sort of system to retain power are going to be more marketable. Remember though, if a generator isn’t a permanent part of the house, it’s really personal property, so it’s not going to be included in the appraised value.
Uncertainty: People like stability and so does the housing market. A friend in a rural area recently said she doesn’t know if she can take PG&E outages for the next ten years. I feel for her and I think her sentiment captures the struggle many residents have right now of living in the tension of not knowing the future.
The market hasn’t stopped: It’s important to note the housing market hasn’t stopped. There are still properties trading hands. In fact, here’s current pendings in Placer, El Dorado, and Nevada County. I realize this isn’t the perfect image because only portions of these counties are having outages. Nonetheless, this is a quick glance to highlight the market is still moving. With that said, we’re at the beginning stage of this new issue and my sense is we’re in a stand-by period where owners and buyers are watching and waiting to see what the future holds.
Migration: Unplanned power outages could drive some residents to leave rural areas (or even suburban areas having issues). I think this is especially true for anyone who has already been flirting with the idea of leaving California. This could be the final straw. But for many rural owners they’re going to stay because they love their lifestyle (of course as long as there are solutions for keeping the power on during outages).
Solar: There’s lots of buzz about solar becoming a bigger trend in outlying areas. My advice? Just be sure the solar system is actually going to work if the power is out. And don’t make a rash decision about installing an expensive solar system if there is a more cost-effective solution too.
Insurance costs: Fire insurance has skyrocketed in outlying areas in recent time and it’s been a huge struggle. Just yesterday I had a real estate agent tell me a client was paying about $800 for an annual insurance plan and now the bill is $3,000 for the year. What a burden – especially for those with a fixed or lower income. Thus throwing in a new layer of power outages really doesn’t help boost appeal for outlying areas. Insurance is certainly a hardship, but at least it is a known factor. What is especially challenging with power outages is their frequency in the future is not known. This is where an element of uncertainty can be more stressful than insurance costs for some households.
Stories vs stats: When something new happens in a market there is a season where we have stories from the trenches of escrows and eventually these stories become stats. In my opinion right now we have limited data and we need more time to understand what the market is doing. With that said, when it comes to areas with rising insurance rates I’m noticing housing supply has ticked up at a higher rate in El Dorado County compared with the rest of the region, and sales volume has seemed to slump more in El Dorado County also. This includes the entire county of course and at some point I may parse only fire insurance areas (this is not as easy to do as it sounds). Anyway, let’s keep watching.
I hope this was helpful. I’m so sorry to friends who have been struggling with power outages. By the way, if any appraiser friends need space to plug into wifi if your power goes out, please hit me up.
Million Dollar Market: On a different note, here’s a quick rundown of the million dollar market in the Sacramento region if you’re interested.
Questions: If you live in PG&E territory, what have you been experiencing? What are you hearing from residents? What did I miss?
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Mark Anderson says
I wonder what proportion of customers are being affected. All the recent bells and whistles surrounding non power part of the biz may have significant role in current uncertainty. As a former resident of California; it is a mess of their own making.
Ryan Lundquist says
Yeah, I’ve yet to hear that figure. It’s been massive though. One figure said up to one million customers. That’s probably not much when considering the total population of California, but this is a huge deal. I know onlookers might think Californians are complainers, but realize some households were without power for six days straight. Think of the food that spoiled, plans that had to be put on hold, etc… This takes an emotional toll on people to have uncertainty and to be told this could occur for ten years. I do hope that’s just worst-case-scenario language from the PR department. Something has got to give and hopefully we’ll see normalization to some extent out of all of this. We’ll see.
Cheree Hort says
This may be slightly off topic I find it odd that no one asks the question, why are these fires happening all of a sudden? Fire and gas have been around for many, many years so what has changed?
I used to work with the forest service and loggers in another state. The state I lived in managed the forest floor so this doesn’t happen. It’s no wonder people are leaving California.
Ryan Lundquist says
That’s a loaded issue. I won’t pretend to know the ins and outs of forest management because that’s not my expertise. My understanding is the federal government owns more than 50% of the forest in California though, so I tend to pause and ask where the federal government’s responsibility is here too when blaming begins… No matter what, it’s bad. This seems to be the new normal, but I sure hope it can stop at some point.
For any onlookers this can quickly devolve into a verbal political fight where it becomes red vs blue. Let’s not go there though. I won’t approve overtly angry political comments that are off-topic. Let’s be real and keep it civil. I have to think that’s possible.
Bridget D Ball says
The problem is with PG&E monopolizing the market. This is what happens when a company gets so large that they can no longer manage their wires. The area maintained by them is HUGE. PG&E needs to be broken up. This actually has been an issue for some time, but as the years go by, and there equipment isn’t maintained, there are major incidents that happen when the wind kicks up. CA environmental side has forbade the cleaning of the forests for decades, hence creating fuel for these fires. Looks like Newsom has lifted that ban, but it will take decades to clear. Anyways, we’re trying to leave this state also! The taxes are out of control, as is the housing market.
Ryan Lundquist says
Thanks Bridget. PG&E is massive. It’s sobering to look at some of the largest fires in the past few years and to realize they were the spark. Yikes. It’s going to cost an incredible amount of money to update their system. I’m hoping for results (but I realize it will be decades).
merv conlan says
Man! you just semi-ans a ques I’ve had: who precisely runs the forests here? the full ans is crucial, cause if its Calif then I’m outta here! From an old gold mining family who were taught by the Indians how to handle a forest (as Trump tweeted the forest floor is central). Oh, and my take on your first item: Prolonged. If global heating is nonsense and if we are gradually approaching a mini ice age, then be careful! those arctic winds coming over the East slope of the Sierra will bring 50-80 mi wnds to us regular.
Brent Johnson, SRA, AI-RRS says
Keep in mind Cheree, that most CA fires are not in forested areas and the ones that are, are mostly on privately owned land, not publicly owned or controlled. Granted the worst fire last year was in a forested location, but it was also on privately owned land. So unless we want the US or CA clearing our privately owned land to resist potential fires, not sure what the CA can do. Otherwise, most of these fires have been located in non-forested grassland and chaparral areas. This CA state forest management talking point repeated in the media is popular, but simply not relevant to the discussion.
merv conlan says
Brent, I’d venture that ALL the fires STARTED in forested areas, public or private. as said above, I’m from a mining family, just north of Tahoe. Biased: have felt the public maintenance of Forested areas in Ca is idiotic. Ya know I’ve yet to see the PUC mentioned in all this PGE bashing!
Patricia Cameron says
One of my clients has a $3,000.00 per year insurance cost. AND, this is low compared to others who might be 5 miles away from a fully manned fire station; or 1000 ft from a fire hydrant.
It’s very sad for folks living in the area, and for those who want to sell. Real estate in the Georgetown, and surrounding area, is barely moving.
Add to that, the folks who cannot afford to buy a generator, or pay for this rise in insurance cost.
Ryan Lundquist says
You are exactly right. The solution of a generator sounds easy, but that’s not something everyone can afford. The struggle is real here.
ChrisBern says
Good blog. Having had our power shut off both times in October, the thought did cross my mind “could this affect our home’s value in the future, if these blackouts become persistent”.
One thought on generators: while they are indeed personal property, I think it would be an attractive to a buyer if an electrician has wired your circuit box to allow a generator to plug into it directly. (as opposed to just running several extension cords through open windows to a generator) For that matter, you could even throw in your generator into the sale.
In this scenario then what you’d be doing as the seller is probably less about affecting the appraisal, and more about overcoming potential buyer objections, and possibly standing out versus a neighboring property that’s for sale that isn’t similarly situated to smoothly handle power outages.
Ryan Lundquist says
Thank you. Your last paragraph was especially on point. Extremely well said. I definitely agree about the attraction of a generator. A seller giving that to the buyer with a full-priced offer, for instance, is a great gesture to get a deal done. Or a seller can offer it to the buyer at a discounted price… The truth is sellers and buyers will navigate this and over time it’ll be more common to know the ins and outs of generators and escrows.
Regarding generators, I won’t pretend to be an expert in all types, but if they are simply plugged in with an extension chord, then clearly we’re looking at personal property. But if the generator is permanently attached and thus deemed a fixture, then that’s a different story and it could be included in the value. Any onlooking appraisers in purely rural markets can certainly pitch in thoughts because they may have something deeper to say.
Terry Rohrer says
Good article, Ryan. Determining whether personal property or real estate will be the easy part of the equation. Much more problematic will be the pressure on appraisers to “give” generators value. I appraised a rural property a year or so ago where the seller reported investing $25,000 (almost 8% of the selling price) in a large, 200amp generator on a concrete slab with its own propane tank, wired in to the house (I’m sure with automatic switching to start on power failure and stop on power restoration to avoid feeding power into the grid…a problem, I understand). Sales supported the contract price without any consideration for the generator. Great for the buyer, for sure, but not a penny returned to the seller. I expect it will be many years before sufficient data exists (assuming all parties are committed to accurate reporting) to have a chance of quantifying any value attributable to generators. Most likely, data will be “generator” but that will include everything from the 9 amp Honda with an extension cord capable of turning on a few lights to an installation as described above. In that case, the best analysis will result in a conclusion that generators do not contribute to value.
Ryan Lundquist says
Thank you Terry. Excellent point. I think you are 100% correct about sellers expecting buyers to pay dollar for dollar. Buyers don’t do that with hardly anything though. It’s not the way the market works.
Not long ago I was talking with two appraisers who do lots of rural appraising in outlying areas to Sacramento and they echoed your sentiment somewhat about the difficulty of proving a specific value for a generator. It really might be best to simply include the item in the final reconciliation of value rather than actually adjust. Though right now with emotions running high and so much uncertainty about power, I’m guessing buyers are going to really be paying attention to whether a generator is present or not. We’ll see though. Hopefully we will have good data…
Patricia Cameron says
Generators are best functioning when an electrician has upgraded the electrical to allow for it. Then, when a blackout occurs, you just Plug in to the panel.
However, I hate to say this, but even prior to the blackouts these High fire severity zones have been tough to sell.
Since the Paradise fires, many people have been afraid to move to one. Now, the blackouts are certainly not helping!
Ryan Lundquist says
Yeah, the fire insurance issue has been an enormous deal. It’s going to be interesting to see what happens to the market over time if the insurance issue is not solved. We will know more about the market as time unfolds…
Tom Horn says
My first thought, which you covered, by the way, is that solar power may increase. I cannot imagine having to deal with this type of uncertainty. I guess only time will tell regarding migration and property values. Great way to stay on top of current events, Ryan.
Ryan Lundquist says
Thanks Tom. It’s been unreal to watch this. Many locals went without power for six days in a row. That’s some serious uncertainty – especially when the utility company can turn it off and on at their choosing for however long they wish.
Terry Rohrer says
Tom, that is one of the rather shocking outcomes of these outages…people are finding out that without the grid energized, their solar installations are useless. To my knowledge, the solution to that is a bank of batteries, which will greatly increase the cost of those installations, and limit their utility. And maintaining a bank of batteries to ensure full capability for a reasonable life is no small task according to everyone who has relayed their experiences to me! It becomes a second job.
Mark says
We just fled CA in August for TX.(political reasons) We formerly lived <20 minutes from Paradise,CA who's fire anniversary is tomorrow.
I just spoke with an insurance agent switching coverage and I was told explicitly that any event in a state raises rates for the whole state irregardless of affected area. Affected areas get special raised rates but not as high as they should be while the rest of the state is used to soften the blow so customer feedback is minimized.
Hurricanes on the TX coast cost people NOT in hurricane zone a higher premium.
Home and auto insurance are higher by 15% than in CA while my RV insurance went from 146 to 680 based on location and I am NOT(by choice) near a flood, fire, tornado, or hurricane zone.
On another note-TX housing prices are cheaper outside of metros. However, dont come to TX for cheap, its the same annual cost as CA(2+% taxes). Come for freedom and leave CA at the border.
Housing is cheaper but fruits/veg are 4 days older by the time they show up and 2x cost. All else is same cost while insurance is higher.
Ryan Lundquist says
Thanks Mark. I appreciate your two cents here. I hope you’re enjoying life in Texas. Beautiful place. Nice people.
Kathy Smith says
Thank you for the insight. Great article.
Ryan Lundquist says
Thank you Kathy. I appreciate it.
Steve Kroes says
I used to live in Nevada City and still stay in touch with people up there. The stores and restaurants in their beautiful downtown depend on tourists, and during the blackouts, they couldn’t make any money. This may end up having an even more acute effect on small businesses (and their employees), and though that’s off the topic of home values, if local economies are damaged, it could have ripple effects on home values to some extent.
Ryan Lundquist says
Steve, thank you for sharing. I really wish I would’ve have mentioned the commercial aspect. We could probably talk about the impact to new residential construction also if blackouts and insurance issues persist. This is a big deal. I completely agree with you about the commercial sector.
Brian Melsheimer says
Hey Ryan, great post.
Some generators are fixtures. Most backup systems that are automatic and hard wired to electricity and gas are considered fixtures and would be included in the appraisal. Much different than the portable generator that’s personal property.
In Nevada County, October was a challenging month. I’ll have more data soon but sales were down 7.6% from September and down 14.6% since Oct 2018. Listings were down 5% from September. It’s tough to buy/sell homes when there is no power. I did give huge props to the agent I saw having an open house during one of the outages. I’m going to need to analyze more data to determine if this is a seasonal market blip or a real trend.
Ryan Lundquist says
Thanks Brian. I’m glad you said that. This is why I was really careful with my wording above in the way I described what was clearly a non-permanent generator.
I look forward to your market update. I’ll be watching that closely. We’ve been having slumping volume already, but this could mean December is especially low in some areas as these would-be pendings from October and November would be closing around December most likely. This is ironically like last year as we had one of the worst Decembers in a decade.
Brad Rundbaken says
I was at Windwalker Vineyard in El Dorado county this past weekend and there are For Sale signs everywhere. One resident told me her Insurance went from $1500 to $5000. The insurance increases and consistent blackouts are not a good combo for real estate values impacted by these variables.
Ryan Lundquist says
Thanks Brad. Yeah, we don’t have too much data right now, but if we keep seeing listings increase and sales volume slump, we’ll definitely have more stats soon. Often when a market slumps we see a change first in the listings, then in sales volume slumping, and then with prices. These are all things to watch. Thanks for the heads-up here.
Cleveland Appraisal Blog says
Nice post Ryan! I am so sorry for you all out in CA. It seems like it’s been one issue after another. My heart goes out to you all. Hang in there! Here’s to better days ahead!
Ryan Lundquist says
Thanks Jamie. I appreciate it.
David Rasmussen says
Did an appraisal on a property that had a generator installed in preparation of Y2K. Owner said that it was not a consideration in their decision to purchase the residence did not even know if it operated properly. Maybe need a line item in MLS search for generators similar to residential PV systems.
Ryan Lundquist says
That’s classic. Thanks David. Y2K was such a bust. I’m guessing the market did not mandate the system and this guy way overbuilt for the area. I know someone who bought four big barrels of grain in preparation for Y2K. Opps, didn’t need that.
In this case the market might begin to expect generators. That’s what makes it really interesting.
As a side note, my (almost) wife and I had a date on the night of Y2K. At the time we were still dating and just about to be married. But we had a special date just in case the world ended (we knew it wouldn’t). Haha.
Kathi Jobson says
Ryan, so I have clients that are in escrow for a property in Placerville, just 3 minutes from town. The cost of a generator for this 1700+ square foot home is $12,800, a propane generator. Also their homeowners/fire insurance will be $3,700 a year or at least this is the quote we got.
I went on a pre-listing appointment in Newcastle, the owners said their homeowners TRIPLED for a 1600+ square foot home on 5 acres with a barn is $6,000.
Lori Wilson with Property ID told me her insurance tripled as well and that in her neighborhood in Pollock Pines their property values have dropped by 30% and they are seeing their first foreclosure. If someone has a impounded account and their house payment goes up significantly because their insurance triples they may not be able to make their house payment. This is a real problem in the foothills.
My hair dresser told me one of his clients are paying $1,000 a MONTH and that some of their neighbors who own their homes outright are forgoing having insurance.
Just curious what your thoughts are about all of this.
Ryan Lundquist says
Thank you Kathi. I really appreciate you sharing. Please keep doing that. These stories are sobering and it’s simply not sustainable to see the market continue like this forever…
We’re going to see some people able to hang on and afford the market, but others won’t be able to hang on. I imagine if many owners get a generator that’s going to relieve some financial burden on buyers. Of course sellers will expect buyers to pay dollar for dollar for the system, but that’s not going to happen. But some owners don’t have the cash. Or they may have to refinance. Or maybe they can get a loan with a generator company. It’s really unfortunate what is happening, but for many owners there will be options to hang on.
For others though the only option will be to sell or let the house go. In a market with eight years of price growth I would imagine many have enough equity to sell instead of go into foreclosure. But we’ll see. Regarding foreclosures, we’ve really bottomed out in the region. There was only one REO last month in El Dorado County, one the month before, but five the month prior.
At some point this fire insurance issue will collectively affect prices though. I say collectively because there are instances where prices have been reduced or sellers have given fat credits to buyers, but some incidents may not lead to collectively seeing prices dip in an entire area.
Beyond prices though we’ve seen volume slump and inventory increase at higher rates than the rest of the region. But prices are often the last thing to crack. In other words, we see the symptoms of struggle in the listings, in stories from escrows, and in sales volume slumping. And eventually we tend to see a change in prices. My sense is prices are about the last place the trend shows up though.
For now it’s possible we’re seeing some issues with pricing in some areas or in some escrows, but it’s also possible we can see some properties sell at reasonable levels with buyers who can still afford the market. When will the market collectively reach a tipping point though where buyers cannot afford higher prices? That’s the real question. What’s going to help a tipping point arrive too is uncertainty with PG&E and increasing inventory (if that continues).
For what it’s worth I’ve heard some sensational stats about fire areas, but when running data I’m not able to replicate some of what is being said out there. For instance, the other day I read that it was taking twice as long to sell a home in deep fire areas in El Dorado County, but when running stats it simply is not true. If someone knows otherwise, speak up. I’m not trying to sugarcoat anything here. I’m only saying sometimes there’s a disconnect between actual data and stats people are quoting.
In short, what we’re seeing happen with fire insurance is not helping a market that is already beginning to struggle with affordability. I suspect more and more we’re going to see sellers have to entice buyers to pay higher prices. This is simply a market where buyers are gaining power. It’s hard to imagine prices will remain the same without external influence of some sort too.
One other thing. There are different sub-markets in outlying areas. The higher-end of the market is not immune to feeling the pain of insurance costs, but a few extra thousand dollars to the wealthy isn’t the same thing as lower price points. Thus it’s always a good reminder to recognize the trend could be different based on location and price point.
Anyway, those are some of my thoughts. I’m sure I have more too. Let’s keep the conversation going as needed. I appreciate this.
Anything to add?
Jane Layton says
Hi Ryan – I love your blog and your measured approach to the market. Thank you for addressing this topic. When we face challenges like this, we should be mindful about making sweeping statements and characterizations or passing along hearsay (especially when it contains statistics). Perhaps there will be some migration due to this, which as you mentioned might be the “final straw” for people already flirting with the idea of leaving the state (i.e., multiple reasons for the move). It’s noteworthy that many other wonderful places to live have cons with their pros, such as tornadoes, earthquakes, threat of floods, ice storms, hurricanes, and the list goes on. My heart goes out to the people affected by the fires and the blackouts, and my hope is that the powers-that-be will develop real solutions (and soon). This current challenge likely will require adjustments that cross political and jurisdictional lines as we rethink & revise forest management practices, power distribution systems, and also create defensible spaces on private property. In some rural neighborhoods (like my own) people are forming ad hoc groups to create plans for evacuating large animals should the need arise, and sharing tools and information, which creates a greater sense of community. Perhaps a bit of a silver lining. Thanks for the great content!
Ryan Lundquist says
Excellent commentary Jane. I appreciate the way you’ve articulated yourself here. Indeed we must be cautious about riding the hype train and buying into sensational ideas or stats that sound like they could be true (but aren’t). We need to think thoughts, ask questions, and then watch the market over time. Just a couple days ago I talked with an owner in Sacramento who is going to be building a brand new home in an outlying rural community. We talked about potential blackouts and insurance costs, but the desire for a rural lifestyle offsets all of this. It just goes to show these emerging issues won’t deter all market participants. Some people will decide to make a change of course. But this is where we have to be objective by continuing to watch the numbers and carefully sifting ideas and stats too.
Please pitch in your two cents as you see changes in the community. I’m watching closely and I’d love to keep hearing stories from the trenches of escrows and what residents are thinking. Thanks again.
Brad L Rundbaken says
Below is a link to an excellent documentary on the fire problem in Cali.
Fire, Power, Money
Ryan Lundquist says
Thanks Brad. I’ll check this out. I think I saw a title on Netflix recently too if I”m not mistaken.
merv conlan says
Everybody has to realize, Newsom is our only hope.
Say, I’ve gotta question for y’all: why is it I’ve not heard the acronym PUC hardly a’tall….but PG&E darn near incessantly???? Uhh, isn’t that former acronym supposed to regulate the latter acronym for the past 90yrs +?????