Wildfires add to woes of California housing market

RANCHO SANTA FE, California (Reuters) - The air at Cielo, a luxury gated community with pueblo revival-style homes, is heavy with the smell of burned wood and brush.

The road leading in provides a perch to survey damage from the fires that swept through Southern California last week: toppled power lines, blackened hillsides and homes reduced to piles of melted metal and concrete.

Cielo, with its $2 million homes and 112 new lots, may have been spared by the ravenous fire, but it is likely to join the list of victims in a property market already in crisis.

"No one is going to want to buy a home when the homes around them are charred wreckage," said Alan Gin, a professor at University of San Diego's Burnham-Moores Center for Real Estate. "What were slow sales are going to dry up."

Southern California's real estate market has been in a slump for more than a year, hurt by a combination of oversupply of available homes and a mortgage crisis across the United States.

Home sales in Southern California were the slowest in 20 years in September despite low interest rates, according to real estate research firm DataQuick Information Systems.

The last time a major wildfire hit the region, the housing market was booming and the fires slowed activity for a month or two before home prices continued on a blistering climb.

Realtors are trying to put a positive spin on last week's events, remembering that in the 2003 fires, people who returned to find their homes destroyed or heavily damaged had rented nearby or bought places to live in for a few years during the rebuilding process.

"Many people fear that residents will want to move away but it's quite the contrary," said Rick Hoffman, president of Coldwell Banker Residential Brokerage in San Diego. "Residents tend to regroup and rebuild."

'NO MASS EXODUS'

Last week's wildfires, stoked by gusting Santa Ana winds, destroyed more than 2,000 homes and other structures in Southern California, most of them in communities around the city of San Diego.

But the damage to the real estate market from the fires may be more short-lived than that of the mortgage meltdown, in which borrowers got in over their heads by taking loans with low introductory interest rates that are now being adjusted upward.

Default and foreclosure rates are rising rapidly in California.

"Those homes and businesses will be rebuilt one way or another, even if it's not by the original owner," said Hoffman.

Indeed, Rancho Santa Fe offers an idyllic California life, with breezes blowing in from the nearby Pacific Ocean and riding stables dotted throughout the horse-loving community.

For those looking to rebuild homes in the fire zone, they may face strict new building standards.

The stone, tile and stucco homes in Cielo escaped unscathed even though the flames crept within a few steps of certain properties, due in part to strict standards meant to help people survive a wildfire if evacuation is not possible.

The standards, adopted by San Diego County, outlaw the use of flammable building materials and impose restrictions on certain types of vegetation around the property, including a ban on cypress trees. They also call for special sprinkler systems.

In more middle-class Ramona, where several hundred buildings were ravaged by the fast-moving fires, many older homes in remote parts of town were completely destroyed.

Homeowners, according to Lisa Schmidt, president of the Ramona Real Estate Association, ultimately accept the risk of wildfires and earthquakes as part of living in sunny Southern California.

"Everyone I've spoken to has told me that they intend to rebuild," said Schmidt, who chose to move back to Ramona with her husband in 2004 after fires destroyed homes in the town a year earlier. "I don't think there is going to be a mass exodus or anything."