Could the Ridgecrest earthquakes rattle California’s shaky housing market?

While most homes were spared significant damage, the string of powerful earthquakes that rocked Southern California last week served as a strong reminder that “The Big One” could strike at any time.

“The Big One” refers to the concept of a catastrophic earthquake of magnitude 8.0 or greater that could occur along the San Andreas Fault. Geologists have said that the fault, which runs roughly 750 miles up the length of California, is overdue for a major quake.

Some economists question whether this recent spate of seismic activity could compound the troubles some home sellers are starting to experience in the Golden State’s housing markets.

But the San Andreas Fault isn’t the only seismic concern for California residents — in fact, last week’s temblors occurred on faults that are not part of the San Andreas system.

These fault lines run through many of the most expensive housing markets in the country — including San Jose, San Francisco and Los Angeles. But recently, these markets have started to show signs of weakness as years of home-price appreciation have pushed so many would-be buyers to the sidelines.

Danielle Hale, chief economist at Realtor.com said she expects a slowdown in the short-term in the housing market in and around Ridgecrest, Calif, a town near the epicenter of last week’s quakes. Meanwhile, demand will likely increase in nearby markets that escaped with less property damage as would-be Ridgecrest residents look elsewhere. Like other parts of California, home prices in Ridgecrest had already flattened over the last year.

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With consumers now re-awakened to the reality of the risk that earthquakes pose to properties throughout the state, some economists question whether this recent spate of seismic activity could compound the troubles some home sellers are starting to experience in the Golden State’s housing markets.

Ultimately, the jury is out on whether the quakes will exacerbate the situation, but they add another concern for people who may already be put off by the high cost of housing in California, said Daren Blomquist, vice president of market economics at real-estate website Auction.com.

How earthquakes and other natural disasters have affected home prices elsewhere

There is a precedent for seismic activity causing a reduction in home prices.

A 2016 study from the Federal Reserve Bank of Cleveland found that prices declined between 3% and 4% after a home experienced an earthquake of 4.0 to 5.0 intensity of the Modifed Mercalli Intensity scale, another form of measuring the strength of temblors other than the moment magnitude scale. More major quakes, those with an intensity above 6, led to a price drop of up to 9.8%.

(The Modified Mercalli Intensity scale ranges from 1, which is an earthquake that isn’t felt the vast majority of people, to 12, which is a quake that causes total damage. Comparatively, the moment magnitude scale, which is derived from the famed Richter scale, measures the strength of temblors on a logarithmic scale that starts at 1.0 and can go to 9.0 or greater, with higher numbers representing more destructive earthquakes.)

The study focused exclusively on Oklahoma, which has seen an uptick in seismic activity, which many associate with the increased oil and gas fracking activity across the state.

A 2016 study from the Federal Reserve Bank of Cleveland found that prices fell 3% to 4% after a home experienced an earthquake of 4.0 to 5.0 intensity of the Modifed Mercalli Intensity scale

Similarly, Hurricane Maria caused a sizeable decline in home prices in Puerto Rico as investors fled the island territory in the weeks and months following the devastating storm.

However, in Anchorage, Alaska, which experienced a 7.1-magnitude quake in 2018, the data is more mixed. “Sales have looked remarkably similar to the previous year, and the earthquake definitely did not cause a spike in listings,” said Zillow Z, +0.88%  economist Jeff Tucker. “In fact, Anchorage listings have been down year over year, every month since the quake.”

And while home prices in the city have dipped since the earthquake, it’s not clear whether the two occurrences are related.

Read more: Natural disasters can hurt people’s credit scores for years afterward

Why California may prove resilient this time around

Another reason why home sellers and real-estate agents in California may be able to breathe a sigh of relief: Last week’s earthquakes left no fatalities. A recent study by Texas A&M University professor Amir Fekrazad found that list prices have decreased 3% in California ZIP codes with high seismic hazard after high-casualty earthquakes occurred outside the state. Even then, the effects only lasted for a month after the temblor occurred.

Generally, home prices could fall for one of two main reasons: An increase in homes for sale on the market, reducing competition among home buyers, or a decrease in the demand for homes, resulting in price cuts.

Two of the most popular destinations for these migrants, Oregon and Washington, are at a high risk of earthquakes, suggesting that seismic activity isn’t necessarily top of mind for buyers.

Ultimately, earthquake-related concerns could prove to be a wash when looking at markets as a whole. There is an ongoing trend of people leaving California due to the high home prices and cost-of-living and moving elsewhere. However, two of the most popular destinations for these migrants — Oregon and Washington — are also at an extremely high risk of earthquakes, suggesting that seismic activity isn’t necessarily top of mind for buyers, Tucker said.

“Many of California’s in-migrants are actually coming from outside the U.S., so they’re already committing to a big leap and willing to jump through numerous hurdles for the jobs or family connections that bring them to the Golden State,” Tucker added, “For most such people, the added reminder of seismic dangers in California would not tip the scale on such a major decision.”

Instead of affecting the choice of whether or not to buy at all, the recent quakes may simply shift buyers’ preferences for the type of home they want.

“Older homes can already be less expensive than newer homes as they may not be equipped with the latest features,” Hale said. “But now that buyers are thinking about earthquakes and potential damage, building resiliency is likely to play a role in driving traffic to newer homes with features designed to minimize damage from seismic activity.”

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