Just ask yourself would you buy $4 mln house on a 30 year mortgage, that you cannot insure against fire hazard, and then have a risk of loaing it in a fire every year ????
If you can't insure it against fire, no bank is going to give you a mortgage to begin with.
Banks aren't in the habit of letting their collateral burn to a crisp.
and this is the real reason why house prices are inflated in these areas - once the insurers and the banks catch up, prices on millions of homes are going to plummet as the only people able to buy them will be the people who are able to self-finance.
Won't those people have more money than the plebes who finance. I too thought the linkage was more implicit. Even if you have insurance covering everything, it's a serious inconvenience to lose all your stuff and live elsewhere for however long while your neighborhood gets rebuilt.
They have more money. Doesn’t mean they want to spend it on uninsurable houses - or at least, not unless the price of the house drops enough to make it worth their while.
Is there a reason to believe there will be no fire insurance available, vs it being very expensive? In principle you can have insurance against things that are likely to happen, as long as it's priced accordingly.
The insurance only needs to cover cost to rebuild. Houses in LA are largely econo shitholes built on $1M worth of land. The land is still there after a fire.
California has a regulatory rulemaking process for insurance rate-making, which prevents insurers from setting the rates they'd need to stay solvent in California's wacky combination of ultra-high property prices and ultra-high exposure to catastrophic risk. The result is insurers leaving the market.
Can you even get a mortgage without insurance?
Not for the majority of people. I've even heard it's becoming a common practice for HOA's to require homeowners insurance so even if you are cash buyer you could still be forced to buy insurance.
Near LA I imagine the land itself is valuable enough to get a loan on and still valuable if it burns.
But is it actually that valuable if no potential buyer could insure a house on it? This is the gist of the article.
It just means the value of the house without the land has to be captured in the down payment so the bank can't take a loss on it.