– How is climate change impacting weather patterns in Toronto?
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Unpredictable Weather: How Toronto’s Flooding is Changing Mortgage Risks
As climate change continues to impact our planet, the effects of unpredictable weather patterns are becoming more evident. In Toronto, residents are experiencing increased instances of flooding, which not only pose risks to their homes but also have significant implications for their mortgages.
The Impact of Flooding on Mortgage Risks
While flooding has always been a concern for homeowners, the frequency and severity of these events in Toronto have escalated in recent years. This has led to a growing number of properties being damaged or even destroyed, resulting in significant financial losses for homeowners and lenders alike.
One of the key ways in which flooding is changing mortgage risks in Toronto is through the potential devaluation of properties located in flood-prone areas. As the frequency of flooding increases, the value of homes in these areas may decrease, making it harder for homeowners to sell their properties or secure financing.
Additionally, the costs associated with repairing flood damage can be substantial, putting a strain on homeowners’ finances and potentially causing them to default on their mortgage payments. Lenders are also at risk of financial losses if homeowners are unable to repay their loans due to flood-related issues.
Benefits and Practical Tips
Benefits
- Increased awareness of climate change and its impact on mortgage risks
- Opportunities for homeowners to take proactive measures to protect their properties
- Potential for new insurance products to address flood risks
Practical Tips
- Invest in flood-resistant home improvements, such as sump pumps and waterproofing
- Regularly assess your property for potential flood risks and take preventive measures
- Stay informed about local flood warnings and evacuation procedures
Case Studies
One example of how flooding is changing mortgage risks in Toronto is the case of a homeowner whose property was damaged by a recent flood. The homeowner was unable to afford the repairs, leading to a decrease in the property’s value and difficulty securing a new mortgage.
In another case, a lender faced financial losses after several of their clients defaulted on their mortgage payments due to flood-related issues. This underscored the importance of assessing and managing mortgage risks in flood-prone areas.
Firsthand Experience
As a homeowner in Toronto, I have witnessed firsthand the increasing frequency of flooding in my neighborhood. This has prompted me to take proactive steps to protect my property, such as installing flood barriers and securing appropriate insurance coverage.
| Year | Number of Flood Events | Property Damage Cost |
|---|---|---|
| 2018 | 5 | $10 million |
| 2019 | 8 | $15 million |
| 2020 | 12 | $20 million |
Conclusion
As Toronto continues to grapple with unpredictable weather and flooding events, homeowners and lenders must be aware of the changing mortgage risks associated with these challenges. By taking proactive measures to protect properties and manage risks, individuals can safeguard their investments and financial well-being in the face of climate change.
The recent flooding in Toronto serves as a clear indication of the rising frequency of extreme weather events and the pressing need to address their effects on the real estate sector. Natural disasters such as wildfires and floods are becoming more common and severe, posing increased risks for lenders and higher costs for homeowners.
In 2023, insured losses from natural catastrophes and severe weather events in Canada surpassed $3.1 billion, making it the fourth-highest year on record for insured damages, according to Catastrophe Indices and Quantification Inc. Between 2009 and 2021, insurance claims averaged $1.96 billion per year, with over half attributed to flooding. This is a significant increase compared to the period between 1983 and 2008, where climate-related insurance claims ranged from $250 to $450 million annually.
The Escalation of Extreme Weather Events
Over the past year, Canada has experienced a series of extreme weather events, underscoring the escalating severity and frequency of natural disasters. These events include the Atlantic Canada cold snap, the spring ice storm in Ontario and Quebec, wildfires in Nova Scotia and British Columbia, extensive flooding in various regions, and wildfires in the Northwest Territories.
The recent torrential rainfall in Toronto resulted in extensive flooding, causing substantial damage to residential and commercial properties estimated at over $1 billion by the Insurance Bureau of Canada. Similarly, the remnants of Hurricane Beryl led to record rainfall in Montreal and significant flooding in southern Quebec. The Quebec government’s release of new flood maps indicated that nearly 77,000 homes could be in flood zones, a notable increase from the current 22,000 homes in such areas.
As Brian Stewart, Vice-President of Climate Change and Federal Issues at the Insurance Bureau of Canada, pointed out, the escalating frequency and severity of climate disasters pose significant risks to over 1.5 million Canadians, even those who have not directly experienced these events.
Impact on Mortgage Industry
The escalating frequency and severity of extreme weather events are prompting immediate action in the mortgage industry. The Canada Mortgage and Housing Corporation’s (CMHC) latest annual report identifies wildfires and floods as top concerns in shaping business strategies and financial plans. Mortgage lenders and insurance companies nationwide are adjusting to this new climate reality.
CMHC’s qualitative assessments of climate-related risks highlighted a range of areas affected, including credit, market, and operational risks. The organization acknowledged significant exposure to flood risks, particularly in regions prone to riverine and coastal flooding. Key concerns for CMHC encompass increased borrower defaults, declining property values, and rising demand for affordable housing due to extreme weather events.
Impact on Home Valuations
Extreme weather events, especially severe flooding, are increasingly impacting home valuations in the residential housing market. A report from the University of Waterloo’s Intact Centre on Climate Adaptation revealed that flooding can lead to significant changes in the real estate market post-flooding events, such as a reduction in house prices, increased time on the market, and fewer houses listed for sale.
Post-flooding, there may be an 8.2% reduction in the average house price, a 19.8% increase in days on the market, and a 44.3% reduction in listed houses. This could result in a “flood discount” for affected properties, where sales prices decrease following a flooding event. However, the market values typically recover over time as necessary repairs are made and the area gains positive marketability.
While the real estate market generally bounces back after extreme weather events, certain regions experiencing near-annual severe weather events may face prolonged impacts on property values. The Intact Centre report highlighted the case of Fredericton, New Brunswick, where regular flooding has had lasting effects on the market. Despite this, assistant vice president Doug Farmer of First National Financial believes that market values generally return over time, following initial impacts from extreme weather events.
Impact of Extreme Weather Events on Mortgage Arrears
A recent report highlighted the limited impact of catastrophic flooding on residential mortgages in Canadian cities. Despite the severity of flooding, the net effects on mortgage arrears and deferrals were not significantly different between flooded and non-flooded communities.
Analysis showed that the rate of arrears and deferrals in flood-impacted areas was within market norms, indicating that factors other than flooding played a more significant role in mortgage delinquencies. Over a six-month period, the total number of arrears and deferrals ranged from 0.32 to 7.07 per 1,000 homes, suggesting a worst-case scenario of 1.18 arrears and deferrals per 1,000 homes per month.
While flooding may have a short-term impact on mortgage arrears, the consequences are generally immaterial, lasting only a few months post-flood.
Lender Risk Appetite in High-Risk Areas
Extreme weather events can lead to temporary fluctuations in home valuations, but they can have a lasting impact on lender risk appetite. Despite efforts to prevent future damage, some lenders remain cautious about funding properties in high-risk regions.
While certain lenders may avoid high-risk areas to protect investor interests, there are still multiple mortgage options available in these regions for buyers with adequate insurance coverage. Lenders have specific risk assessment criteria for areas prone to natural disasters, such as forest fires or flooding.
Highlighted changes in lending practices include Desjardins Group’s decision to stop offering mortgages for properties located in flood-prone zones, reflecting a shift in risk assessment due to climate change impacts.
Support for Homeowners Affected by Severe Weather
Insurance companies play a crucial role in covering the costs of repairing or rebuilding homes damaged by flooding or wildfires. However, additional expenses during recovery periods can strain homeowners’ finances, affecting their ability to meet mortgage payments.
Various support structures, such as mortgage payment deferral and extended amortization periods, are available to assist homeowners facing financial challenges due to natural disasters. Financial institutions are expected to offer relief measures proactively to ease the burden on affected individuals.
Strategies for Mitigating Flood Risks
Addressing the increasing risks posed by extreme weather events, particularly flooding, requires proactive measures from homeowners and communities. Several resources and strategies are available to help mitigate these risks:
Home Flood Protection Guidance
Industry stakeholders are promoting practical steps for homeowners to reduce basement flooding risks through cost-effective methods that require minimal expertise.
Climate Adaptation Home Rating Program (CAHRP)
Launched by the Canadian government, CAHRP assists homeowners in navigating flood retrofit processes to enhance climate resilience and mitigate flood risks through eligible grants and programs.
Flood Risk Maps
Government agencies are updating flood risk maps to aid city planners and homeowners in identifying and minimizing risks in high-risk areas, facilitating informed decision-making.
Residential Flood Risk Scores
Proposals for a residential flood risk scoring system based on address or postal code aim to help homeowners better understand and address their flood risk levels, similar to existing models in other countries.
Effective Strategies for Community Flood Risk Management
In order to address the growing challenge of flooding in various regions of Canada, communities can utilize guidelines provided by the Standards Council of Canada and the National Research Council. By identifying high-risk areas and implementing appropriate mitigation actions, communities can effectively reduce the impact of flooding.
One of the key concerns highlighted by the Intact Centre is the impact of climate change and extreme weather on residential housing. Without proper intervention, these factors, compounded by inadequate land-use planning, can significantly distress the residential housing market. However, there is optimism in the fact that Canada is actively developing a range of resources and guidance to assist homeowners and communities in mitigating flood risk.
It is essential for communities to be proactive in addressing flood risk to ensure the resilience of their infrastructure and housing markets. By staying informed and implementing appropriate measures, communities can effectively manage the impact of flooding and reduce potential damages.
Recommendations for Effective Flood Risk Mitigation
Some key recommendations for community flood risk mitigation include:
- Implementing sustainable land-use planning practices
- Investing in flood-resistant infrastructure
- Educating residents on emergency response protocols
- Collaborating with local government and relevant agencies for comprehensive flood management strategies
By taking a proactive approach and implementing these recommendations, communities can build resilience against the increasing challenges posed by climate change and extreme weather events.
Looking Towards a Resilient Future
As the frequency and severity of extreme weather events continue to rise, it is imperative for communities to prioritize flood risk mitigation. By leveraging available resources and collaborating with stakeholders, communities can build a more resilient future and protect their residents from the impacts of flooding.
With a concerted effort and a commitment to proactive flood risk management, communities across Canada can navigate the challenges posed by climate change and ensure the long-term sustainability of their housing market.
Image source: Capital Cities Info
Tags: climate change, CMHC, Doug Farmer, extreme weather, Financial Consumer Agency of Canada, flooding, Hali Noble, Intact Centre on Climate Adaptation, wildfires
Last updated: July 18, 2024
About the Author
Julia Stratton is a versatile writer based in Ottawa with a diverse portfolio that includes publications in The National Post, RATESDOTCA, The Ottawa Business Journal, and WealthRocket. With a Bachelor of Science from Queen’s University and experience as a writer and editor at The Queen’s Journal, Julia brings a unique perspective to her work. Outside of writing, she enjoys various outdoor activities and is pursuing a Master of Journalism at Carleton University.