Extreme Weather Events Are Reshaping Mortgage Risks

Date Posted: August 7, 2024

 

 

 

 

The past flash flooding in Toronto highlights the urgent need to address the impacts of extreme weather on real estate. As natural disasters like wildfires and floods become more frequent, they pose increasing risks to home financing, lenders, and homeowners. 

In 2023, Canada faced over $3.1 billion in insured damage from natural disasters, the fourth-worst year on record. From 2009 to 2021, average annual claims surged to $1.96 billion, with flooding accounting for over half. This is a stark contrast to the $250 to $450 million annual claims from 1983 to 2008. 

Recent extreme weather events in Canada include: 

• Atlantic Canada cold snap 

• Spring ice storm in Ontario and Quebec 

• Tantallon wildfire in Nova Scotia 

• Extensive flooding in Nova Scotia 

• Severe summer storms across the Prairies 

• Wildfires in British Columbia’s Okanagan and Shuswap areas 

• Behchokǫ̀-Yellowknife and Hay River wildfires in the Northwest Territories 

Just over a week ago, Toronto experienced nearly 100 mm of rain, causing widespread flooding and estimated damages of over $1 billion. Similarly, remnants of Hurricane Beryl led to record-breaking rainfall and flooding in Montreal. 

New flood maps in Quebec estimate that nearly 77,000 homes could be in flood zones, up from 22,000. Craig Stewart of the Insurance Bureau of Canada warns that climate-related disasters should concern all Canadians, as over 1.5 million Canadians are at high and growing risk. 

The Canada Mortgage and Housing Corporation (CMHC) identifies wildfires and floods as top priorities for assessing risks and has conducted qualitative assessments of climate-related risks, highlighting concerns such as increased borrower defaults, rising demand for affordable housing, and increased rebuilding costs. 

CMHC's estimates for flood risk exposure include: 

• 4.2% of homeowner insured loans 

• 3.1% of multi-unit insured loans 

• 4.3% of mortgage funding loans 

Flooding significantly impacts home prices, with a University of Waterloo report noting an 8.2% reduction in average sold price, 19.8% increase in market time, and 44.3% reduction in listings after flooding. However, these impacts are often temporary unless flooding is frequent. 

Lender risk appetite may be affected indefinitely by severe weather events. For example, Desjardins Group has adjusted underwriting guidelines and stopped offering mortgages in certain flood zones. 

To support homeowners, measures such as mortgage payment deferrals, extended amortization periods, and special payment arrangements are in place. Additionally, the federal government provides guidance to mitigate flood risks through programs like the Climate Adaptation Home Rating Program and updated flood risk maps. 

Despite the challenges, Canada has developed resources to help homeowners and communities mitigate flood risks, ensuring a more resilient future.