4 days ago
New cost-of-living crisis deepens in California
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A new cost-of-living crisis is deepening across America's progressive capital. In California , soaring climate risk and mounting insurance losses are converging into a property crisis experts warn could slash the value of millions of homes. Deep Sky, a Canadian carbon removal firm, published an analysis of the state's housing insurance market, which painted a dire picture.
'The highest risk areas of California have effectively become uninsurable and will soon become unaffordable,' the study, published in mid-June, concluded. 'Without significant policy intervention, these properties will eventually become worthless.' The warning comes just six months after destructive blazes ripped through Southern California, destroying over 18,000 structures and burning more than 57,000 acres.
In January, the Palisades and Eaton fires became two of the most destructive blazes in state history. The impact on the insurance market, which was already under pressure , was immediate. In the first quarter of 2025, insurers posted a $1.1 billion net underwriting loss — a sharp reversal from the $9.4 billion gain they posted the same period a year before.
Those numbers have hit some of the most wildfire-prone areas, where premiums have jumped by 42 percent since 2019, and more than 150,000 homes are now uninsured altogether as residents simply cannot afford coverage. But the state has a long way to fall before reaching worthlessness. Right now, the Golden State is America's most expensive housing market. Median home values in California are currently just over $780,000, according to Zillow. That's over $400,000 more than the US average.
But, without a robust fire insurance market, policymakers and researchers are warning that the state is resting on shaky grounds. In May, Ricardo Lara, the state's insurance commissioner, approved a 17 percent rate hike for State Farm General, California's largest home insurance provider, to help pay for earlier destruction. 'The market is not going to fail under my leadership,' he told Politico after the decision.
'I have to make these hard decisions, even though it makes me the most unpopular person, and maybe nobody wants this position in the future.' And California is by no means alone. Several other states that are prone to natural disasters have faced mounting home insurance issues. State Farm hiked home insurance rates in Illinois by 27.2 percent this month , adding $746 to the average bill.
The insurer insists the hike is unavoidable, claiming it is paying out far more in claims than it collects in premiums in the state which is prone to hailstorms. Florida, which saw a major inflow of residents in 2020, is seeing housing shoppers flee its hurricane-vulnerable coastlines that used to draw million-dollar buyers. In April, contracts to buy homes in the Miami, West Palm Beach and Fort Lauderdale regions fell dramatically from the year prior. Homes also lingered longer on the market.
Pending sales fell 23 percent year-over-year in Miami, according to Redfin, which was the largest drop among the 50 most populous metro areas across the US. Meanwhile, some cash-strapped young homebuyers are skipping insurance altogether out of fear their homes will not pass inspection.
