One Year Later: How the Alberta Floods Affected the Housing Market

by Cait Flanders June 25, 2014 / No Comments

Flickr: minimum

It’s been exactly one year since devastating floods poured into Southern Alberta, damaging thousands of homes and businesses in dozens of communities. In total, the amount of damage caused by the 2013 Alberta floods summed it up to be the costliest natural disaster in Canadian history – a whopping $5 billion.

Unfortunately, only $1.7 billion was covered by insurance; that’s because flooding that comes through the doors and windows of a home is not covered by standard home insurance policies. Overland flooding, as it’s otherwise known, is only seen as a risk to a very small percentage of Alberta’s population, and is not affordable for most. Those who needed repair or restoration work done on their homes, as a result of these floods, had to rely on funds from the Government of Alberta Disaster Recovery Program to do so – and, somewhat surprisingly, not everyone accepted the help.

Today, while the province’s housing market is booming, as a whole, the neighbourhoods damaged by the floods paint a different picture. Here’s a look at how the Alberta floods affected both current homeowners in these areas and their potential buyers, and what you should consider before buying a home in a floodway.

How the Alberta Floods Affected Homeowners

As total damages in cities and neighbourhoods that saw the most damage were added up, the province developed a plan to help current homeowners decide what to do with their homes. First, the Alberta government offered buyouts to 254 homeowners – 50 of whom were in Calgary – who lived directly in the floodway. While this may sound gracious, the buyout offers were equal to the assessed value of each home – after the flood. Fewer than half of the 254 homeowners expressed interest and, in the end, only 77 finally agreed to sell, at a total cost of $81 million to the province.

While the decision not to sell may have stemmed from a number of reasons, those who refused to took on an even greater risk: in the event their property is damaged by a future flood, they will never again qualify for Disaster Recovery Program compensation. Furthermore, this decision is passed onto anyone who buys their homes, in the future.

Now, beyond just the physical damage seen to these homes in Southern Alberta, homeowners have since been hit with the reality that their properties are worth a lot less. For example, while the average home price in Calgary is up 5.7% from last year, the flood washed out an average of $208,870 in assessed value for damaged homes in the city. When you combine the 1,939 homes that were affected in Calgary, they shed $405 million of assessed value cumulatively. These figures have devastated homeowners who now owe more on their mortgages than their homes are worth – especially those that need to do a complete demolition and start fresh.

For those who wish to try and sell their homes instead, Calgary real estate agents say some areas have seen prices drop by close to 10%. In the hardest-hit neighbourhoods, however, some homeowners have had to drop their prices by 25% or more.

How the Alberta Floods Affected Potential Buyers

While these drops have been devastating for homeowners, they’ve helped more than a few potential buyers get into the market. Some people who could not afford to buy in Southern Alberta’s more expensive housing markets before have seen the damage caused by the floods as an opportunity. Of course, the process of buying a home has become more onerous since the floods, which means they need to jump through a few extra hoops to get mortgage financing.

Since the floods, lenders have demanded extra documentation be provided as proof of whether or not a property was damaged, even in neighbourhoods far away from any river. Some banks have even gone so far as to create a “flood-prone” postal code guide, which means mortgage underwriters who don’t live locally and don’t understand the area are denying applications simply because of the first three-digits in a property’s postal code. To help their application move forward, many homebuyers are asking their mortgage brokers to include a copy of the flood-prone zone map with the exact location of their property marked.

Before they even get to the mortgage application now, however, all buyers should be asking sellers for proof of any flood mitigation completed to any property – not just those which were damaged in the floods. If the seller cannot provide copies of all the receipts and invoices from the contractors they used, buyers must be prepared to pay for a home inspection. Without proof of this, no lender will touch the property – it’s just too risky.

To protect their potential investment even further, buyers shouldn’t be scared to ask sellers who their home insurance providers are, so they can call and request a quote before making an offer.

What to Consider Before Buying a Home in Alberta’s Floodways

If you’re thinking of buying a home in or around the floodway, make sure it’s a home that a) you can obtain home insurance for (and can afford to do so), and b) is eligible for Disaster Recovery Program compensation should any future floods arise. If you want to make an offer today, but don’t have confirmation of these two things yet, ask your real estate agent to include them as conditions of your offer. You don’t want to find yourself in a situation where you’ve made an offer and waived the financing condition, only to then discover your home would not be covered in the event of another natural disaster. You’re already taking on some risk by wanting to make this purchase, so at least arm yourself with the protection you need if your home is damaged (again) in the future.