The hidden cost of the LA fires

Author

Bear Bull
January 22, 2025

So much has been written about the LA fires.  From potential sources to the government response, virtually every facet of the catastrophe has been under a microscope.  As you probably know by now I’m a regular WSJ reader.  Their examination of homeowners who were victims of the fire was fascinating (shout out to my friend Eryn at Her Personal Finance for first sharing this article).  

 A few notable quotes:

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 Sweeney, a 69-year old retired clergywoman, estimates that her home made up roughly 80% of the family’s overall wealth.  “It was our beautiful dream home,” she said. “It was our primary wealth.”

WSJ

 And:

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 Josie… wants to rebuild but she’s starting to tally up the costs. She said she was initially told insurance would cover $800,000 to rebuild, and $12,000 a month in rent, with access to the rental payments for two or three years. She said she can afford her $2,285 monthly mortgage payment.

WSJ

Are alarm bells ringing in your head?  Mine sure are!

  • 80% of your net worth tied to your home, let alone one asset, is eye wateringly imbalanced.  While it is true that home ownership is a significant tool for wealth creation here in the United States, there’s a catch.  You should never think you are wealthy just because your home value has increased.  In the case of Sweeney, she purchased her home for $780,000 in 2009.  At the beginning of the year it’s value was estimated to be $1.6 million.  As this article makes painfully clear, the unrealized gains are just that.  The value of this home today is 0.  Mortgages are a valuable tool when you (1) realize gains (aka sell) and / or (2) borrow against the asset (like a HELOC).  Which brings me to my second point.

  • The individual with a $2,285 monthly mortgage had purchased the property in 1988 for $455,000.  Assuming this person opted for a conventional 30- year mortgage, this property would have been paid off in 2018.  Almost 7 years ago.  I would like to understand how they are still paying more than $2,000 on this property?

  • In sum, this was a sobering reminder of the fact that most folks are just not great at saving.  Never assume that just because someone has a nicer house, car, [insert other coveted object here], that they have it all figured out. 

Money Memories

New Money Memories  episode is out! It features the incredible Ximena Aleman, founder of Prometeo.  Here’s one of my favorite quotes: 

“I always think that education is our own infrastructure, as human beings.”  

Ximena Aleman

We could all stand to use this reminder every now and then.

Here’s a few other things I’m keeping an eye on:

  • Frequent flyer programs are losing their appeal among Millennial and Gen Z travelers.  As someone who uses her travel card for lounge access while flying Spirit airlines, this makes me feel seen.

  • I first wrote about the mobile money boom in Africa almost 5 years ago.  Check out my revised exploration here.

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