Beautiful and well maintained double size mobile in clean adult-only park (Homestead Acres). This home stayed dry throughout the flooding and so there is NO FLOOD DAMAGE. The front doors are being replaced this week. – Kijiji listing, High River, Alberta.
The woman pointed into the chasm that used to be her Etobicoke backyard. ‘I’ve lived here for forty years,’ she told the CityTV camera, ‘and I have never seen anything like it. Who’s going to fix this?’ True enough, the garden was gone. Washed away in a vortex of angry water, now pretending to be a sleepy creek in a benign urban ravine. Just one of thousands of GTA homeowners whose properties were slammed by flash flooding earlier this month.
Of course, that episode was nothing compared to the misery that hit Calgary and High River, when the rains wouldn’t quit and rivers stopped being ruly. Suddenly everything from luxury riverfront homes to downtown condo buildings were massively compromised – the second major flood in eight years.
Extreme weather leads the news most days, fresh evidence climate change deniers have migrated to the lunatic fringe. And nowhere are people more immediately impacted than with their real estate.
In the 60 days prior to the floods in Calgary, almost a thousand properties changed hands in those areas which ended up under water. Most of those deals were not yet closed when the streets turned into lakes. Lots of ink has been spilled over the destroyed basements and displaced families, as is natural, but what of those people who bought a house and arranged financing on it?
Or how about owning a home in a neighbourhood that was under water, with a mortgage coming due? Will the bank honour that commitment? Even if the real estate escaped damage, would a lower property value mean the full mortgage amount might not be offered?
Finally some good information is seeping through, after weeks of local realtors claiming a natural disaster would actually make everybody richer by increasing property values (seriously). While houses on higher ground may briefly command a premium, you can expect those on the floodplain to be permanently devalued. After all, extreme weather is probably just beginning.
Here’s what we now know.
Appraisers in Calgary and High River have been told by the lenders they work for to throw away the valuations they had for properties recently sold in the affected areas, and to reappraise them. I can guarantee the end results will not be higher. The same thing is happening for existing homeowners who have mortgages coming up for renewal in the next few weeks or months. Those who do not have substantial equity in their homes – at least 20% – could find themselves under water all over again.
TD Bank confirms it’s reassessing every application for a new mortgage, or a renewal, in southern Alberta. Scotiabank says a similar process is happening for the region. And mortgage brokers are warning clients that lenders can refuse to honour commitments they made if they suspect property values in an area have declined, whether the specific property being financed was affected by flooding, or not.
This is also true for renewals. While most homeowners think an existing mortgage will be automatically renewed so long as payments are current, it’s simply not the case. As mortgage broker Mike Boyle told the Calgary Herald on the weekend, “I think a lot of people are going to get blindsided now when their term expires if there’s been damage to the home or the market values in an area have gone down.”
A drop in property prices, of course, means less financing since conventional mortgages cover only 80% of the value of the home. So a $600,000 home with a $480,000 mortgage, which loses 15% of its value due to flood-prone location would qualify for only $408,000 in financing. The homeowner would have to find $72,000 to pay the lender in order to receive a renewal.
Which brings us to the larger question.
If some water can do that, why not a real estate correction?