Wildfires are no longer rare disasters confined to remote areas — they’re reshaping housing markets, insurance availability, and mortgage stability across the western United States. Cotality’s latest report, Wildfire Risk 2025: Priced Out and Burned Out, paints a sobering picture of how climate-driven destruction, soaring rebuild costs, and shrinking insurance options are colliding to leave families and lenders in financial jeopardy.
The Reconstruction Gap: When Insurance Isn’t Enough
One of the most pressing challenges highlighted in the report is underinsurance. Many homeowners find that their policies lag true rebuilding costs by six figures or more. For Los Angeles residents affected by the January 2025 fires, the average gap between dwelling limits and actual reconstruction costs reached hundreds of thousands of dollars. Families who thought they were adequately protected suddenly face a multi-year struggle just to return home.
Contractor shortages and inflated material costs compound the problem. Even nine months after the Los Angeles fires, rebuilding permits remain scarce — showing just how long recovery can stall when insurance payouts don’t align with reality.
Insurance Retreats From High-Risk Areas
The report also underscores a dramatic coverage crunch. In California’s wildfire-prone Wildland-Urban Interface (WUI), more than 452,000 homes are now insured through the FAIR Plan — double the number from 2020. Similar patterns are emerging in Colorado and Oregon, where premiums have surged up to 60% in just five years, forcing many households into last-resort coverage or unsustainable policies.
This retreat has ripple effects: as premiums rise and carriers exit, mortgage underwriting becomes more difficult. In some regions, insurance costs now exceed 3% of buyer income — making it harder for first-time homebuyers to qualify for loans.
Mortgage Domino Effect: Delinquencies on the Rise
When coverage gaps surface, many loan servicers add force-placed insurance — policies that cost roughly twice as much as standard coverage. The result is sudden payment spikes that push households toward delinquency. In Los Angeles County, delinquency rates climbed after the 2025 fires — illustrating how wildfire risk is reshaping mortgage performance and threatening broader financial stability.
A Regional Crisis With National Stakes
The report makes clear that wildfire risk is not just California’s burden. Nearly 2.6 million homes across the western U.S. face moderate or higher wildfire risk, with a combined reconstruction cost value of $1.3 trillion. California, Colorado, and Texas lead in the number of at-risk homes, but metro areas such as Austin, Denver, Bend, and Flagstaff are also among the nation’s top danger zones.
The trend is clear: as more homes are built in the WUI, the risk landscape expands — and insurers, lenders, and homeowners all feel the pressure.
The New Threat: Wildfire-Induced Conflagration
Perhaps the most concerning finding is the rise of wildfire-induced conflagrations — fires that shift from burning vegetation to consuming the built environment. The Palisades and Eaton fires in Los Angeles revealed how quickly structure-to-structure ignition can devastate neighborhoods once labeled “low risk.”
Since 2020, at least 10 conflagration events — including the 2023 Lahaina fire in Hawaii — have destroyed more than 26,000 structures. Traditional wildfire models often fail to capture this exposure, making parcel-level analytics essential for future risk management.
Toward a Data-Driven Future
Cotality concludes that resilience requires a modernized approach:
- Frequent insurance-to-value reviews to close coverage gaps.
- Parcel-level analytics that measure both wildfire and conflagration risk.
- Mitigation incentives that reward homeowners who reduce exposure.
- Policy reforms that balance insurer solvency with homeowner protection.
The 2025 report makes it clear — without swift, data-driven action, more families will be priced out, burned out, or both.
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