Estimates of LA Fire Damages Swing from $50B to $275B
The estimated cost of economic damage from L.A. County firestorms last week ranged from $36 billion to $275 billion – in other words, all over the fire destruction map.
AccuWeather’s Holistic Math
Weather forecaster AccuWeather drew buzz – and raised eyebrows – for its firestorm damage tally of between $250 billion and $275 billion – up to four times as high as other estimates. "Many families will face significant unexpected costs to relocate to another area in Southern California," said Jonathan Porter, AccuWeather’s chief meteorologist. "The recovery process will be extremely expensive and emotionally challenging in the months and years to come."
Economists Skeptical
Two local economists scoffed at AccuWeather’s numbers, citing a lack of knowledge of burned-out homes and businesses on the ground. "Their loss estimates are about as good as their weather forecasts," Chris Thornberg of L.A.-based Beacon Economics said. Mark Schniepp of The California Economic Forecast added, "I think it’s way too early for credible estimates."
A Range of Estimates
J.P. Morgan initially put the damages at $10 billion, then doubled it to $20 billion. And a day later, they redid the math to $50 billion. But how accurate can any damage estimate be when the flames aren’t even snuffed out?
Challenges in Estimating Damage
A key number driving these estimates is damaged or destroyed structures. One source of those numbers, Cal Fire, admits its initial estimates are rough guesses. "These numbers are preliminary based on aerial assessments dedicating heat sources which can include chicken coops, outbuildings, sheds, water containers, fifth wheels, etc.," Cal Fire said. The estimates are then "ground-verified by damage assessment teams."
Current Numbers
As of January 15, preliminary reports by Cal Fire listed more than 12,000 L.A. structures touched by flames, but its verification had found 6,818 structures destroyed and 883 damaged.
Insured Losses and Rebuilding
While it’s too early to assess insured losses in detail from the Los Angeles wildfires, it’s already clear that this is a major insured and economic loss, according to Moody’s. Real estate tracker CoreLogic estimated 16,636 properties in the path of the fires that would cost $13 billion to rebuild. "Not all properties within the fire perimeter are necessarily damaged by fire," CoreLogic wrote. "Additionally, properties that are impacted may not have sustained damage equal to their full reconstruction cost value."
Conclusion
The financial bottom line: cleanup, reconstruction, and relocations – whether paid by insurers, government, or citizens – can boost the afflicted area’s business climate. "With few exceptions, such episodes are characterized by a temporary dip in employment and consumption, followed by a surge in economic activity fueled by recovery spending," Thornberg said.
Frequently Asked Questions
- How accurate can damage estimates be when the fires aren’t even snuffed out?
- Damage estimates are preliminary and subject to change as the situation develops.
- What are the challenges in estimating damage?
- Damage estimates rely on aerial assessments and ground verification, which can be inaccurate.
- What is the current estimate of damaged or destroyed structures?
- As of January 15, Cal Fire reported over 12,000 L.A. structures touched by flames, with 6,818 destroyed and 883 damaged.
