Economists have taught zillions of students that if investors are risk neutral and forward looking that the value of a piece of real estate today is the expected present discounted value of its future rents. As North Korea's ability to shoot nuclear missiles improves, will real estate assets in the Western U.S drop as this "new news" is reflected in prices? This Fox News piece suggests that people in Japan are investing in precautions.
Without engaging in science fiction, this example raises interesting issues related to risk perception and the compensating differential that people require for taking a risk. The standard way to teach this is to refer to Russian Roulette.
If you know that there is a gun with 100 chambers and that one random chamber has a bullet, how much must I pay you to face a 1% chance of death? If the answer is $34,000, then you have revealed that your value of a statistical life is $3.4 million. A group of 100 identical people must be paid at least $3.4 million dollars to play a game in which one of them will die. This gory example highlights how economists think about risk tradeoffs.
In the case of North Korea, we don't know whether they would really launch this weapon, where they would aim it and whether it would hit the target but we do know that this ambiguous risk (that it will hit my house) has increased. When an ambiguous risk's probability increases, how do asset markets incorporate this new news? Do they over-react to the news or ignore it?
It appears that the North Koreans may help to improve financial economics research by offering a new test of the efficient markets hypothesis. Perhaps this is the real goal of their Leader?
Finally, why would California home prices fall? If we are in the range of their North Korea Missiles while Boston is not, then this new risk makes Boston relatively more attractive and investors will bid more aggressively for its real estate. This is the two sector general equilibrium model at work. Economic activity moves to "higher ground" (i.e the safe sector).
UPDATE: For those looking for good empirical work on this subject, here is a real estate paper using rocket attacks on Israel.
also
Arbel, Yuval & Ben-Shahar, Danny & Gabriel, Stuart & Tobol, Yossef, 2010. "The local cost of terror: Effects of the second Palestinian Intifada on Jerusalem house prices," Regional Science and Urban Economics, Elsevier, vol. 40(6), pages 415-426, November.