Catastrophic Los Angeles fire hits family wealth

Don Lee and Andrew Khouri, Tribune News Service

It took a decade of scrimping and saving for the Ramirez sisters to buy their first house, a fixer-upper in Altadena. Nine years later, they bought another, and after a few more years, a third, all within a few blocks of each other. By 2013, the three single women all had their own homes, and they enjoyed watching their properties rise in value to more than $1 million each — the kind of wealth that their immigrant father, a California bracero, could never have imagined. Now, after the Los Angeles fires burned all three homes to the ground, the Ramirez sisters are back to square one. They are once more living together in one house, a four-bedroom short-term rental in San Fernando, paying almost $8,000 a month. And they’re again pooling their funds as they look to buy a house together: Their goal, just as before, is to continue living together until each of them rebuilds her own home — and regains the wealth they have lost.

That’s a daunting challenge, and how close the Ramirez sisters come to success may determine how bright the future of much of Los Angeles turns out to be. To begin with, like the owners of many of the almost 12,000 homes destroyed by the fires, the Ramirezes are likely to find they’re underinsured. Their policy coverage limit may not be enough to rebuild similarly sized houses on their lots, or their final settlement may be negotiated down to less than what they might otherwise get, which is common. After previous California wildfires from 2013 to 2020, almost 40% of homeowners’ insurance claims were underpaid, with households receiving settlements that were 28% lower than the expected rebuilding costs, according to research by Federal Reserve Bank economists in San Francisco and Philadelphia. The gap may be even bigger today because of the expected surge in cost due to unusually high demand for contractors and supplies.

All of which means the Ramirezes will need to take out a loan on top of the mortgages they already have on their incinerated houses. Losing a house in a fire or other disaster does not cancel a preexisting mortgage. So rebuilders may need to work more or longer than they had planned in order to meet the extra expenses. And the rebuilding process will be long and grueling, further complicated by the Trump administration’s crackdown on unauthorized immigrant workers who are a critical source of labor for construction and other industries. The cleanup alone will take many months.

“I’m hopeful, but I’m a little scared,” said Teresa Ramirez, a social worker who at 58 is the oldest of the three sisters. On Saturday, she and her sisters, Alicia and Maria, their brother, Tony, and Teresa’s son, Leo, went together to see the charred remains of their homes. All that is left standing at Teresa’s house are the chimney and fireplace, a metal fence and two orange trees in the back. The destruction caused by the Palisades and Eaton fires is staggering. Total economic damage has been estimated as high as $250 billion. What homeowners lost is certainly in the tens of billions of dollars. Some didn’t have fire insurance at all. Many of those who are covered saw a substantial part of the equity that they had amassed over many years suddenly vanish. For most people, the home is their primary asset, their nest egg and source of financial security. It’s also the foundation of generational wealth— wealth that could be passed on to their children for education, raising families, starting a business and other things that can make future generations stronger and more secure. Historically, that kind of progress has made communities and whole countries grow stronger. Along the way, those promising futures have helped bridge economic and generational divides, brought a level of social cohesion to neighborhoods and spurred broad growth.

The question facing both individuals hoping to rebuild and the larger communities they belong to is whether, and how widely, that dynamic prevails after a catastrophe as enormous as the L.A. County fires. “Those homes represented social stability and transferred wealth in a multiethnic community,” said G.U. Krueger, a longtime Los Angeles housing economist who has done work for the California Public Employees’ Retirement System, among other clients. “Grandparents, parents and their children could support each other through their life stages in celebrating their successes and helping in times of economic and social stress,” Krueger added. “They represented a haven of stability in a chaotic world, which could soon be a utopian memory.” In Altadena, the heart of the Eaton fire, some 6,000 homes, or about 40% of all residential units, were destroyed, according to census data and a Times analysis. Before the fires, it was a middle-class city with mostly older homes (built before 1960) and a diverse population of 43,000 that was about half Latino and Black. Many bought into the community decades ago when it was far cheaper, and over time experienced significant appreciation. As of December, the average price of a home in Altadena was about $1.2 million, a fivefold increase from 2000, based on data from Zillow.

Most have substantial equity in their homes. Some have paid off their loans, or nearly so. Teresa Ramirez’s neighbor on Olive Avenue, Paul Wallace, a retired civil engineer, bought his three-bedroom house 23 years ago. He has just 2½ years left on a 15-year mortgage, and says he has reserves to pay that off. Wallace plans to rebuild, although he, too, worries about the cost. Others, after refinancings and cash-outs, have bigger mortgages. Teresa Ramirez’s is $460,000. Overall, homeowners in Altadena, on average, carried a mortgage balance of $515,000 at the end of last year, according to Moody Analytics’ analysis of credit files for The Times. The Palisades fire, by comparison, destroyed more than 5,500 homes, about 60% of all residential units. The city of 21,500 is older (median age 47), richer (median household income over $200,000) and more than half of the houses were built after 1960. Palisades home values, on average, have more than doubled since 2010 to $3.7 million. With an average mortgage balance of $1.7 million, the typical owner had racked up $2 million of equity wealth as of last year. Its residents include the rich and famous, as well as other well-to-do individuals who have personal resources to rebuild. But there are also homeowners who bought decades ago when homes weren’t as pricey, and others who lived in more modest units.

Katia and Adam Hausman said they stretched to purchase a Pacific Palisades condo in 2012 for just under $550,000. In the years that followed, they advanced in their careers, remodeled their unit and brought their daughter, Mila, home from St. John’s Hospital, turning their two-bedroom dwelling into a place of safety and comfort.

Last month, they watched live on TV as their home burned. The couple said they want to return and think their insurance will cover the cost to rebuild the interior of their condo. But that’s only one piece of the puzzle. Adam Hausman, a real estate broker, said he’s not sure their homeowners association’s master insurance plan will be enough to reconstruct the exterior of the building. If the money is there, the process won’t be quick. Hausman, 53, estimates it would be five years until they could move back in.