Seven months after Alberta's devastating floods, home buyers and sellers are finding themselves flailing in uncharted waters as financing dries up.
Increasingly banks and insurance companies — which are conservative by nature — are clamping down on financing in Calgary and other residential markets where properties were affected by the June flood by making blanket decisions.
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For those trying to navigate the changing tides, understanding how the banks and companies are making their decisions is frustrating.
"When I went to my bank, after I'd already been pre-approved for a mortgage, they said there were going to be extra conditions on any piece of property that was within the postal code that was considered part of the flood zone," said Colin Brandt, a Calgarian recently condo shopping in Bowness.
"While this particular condo wasn't in the flood zone specifically, it was within the postal code."
Brandt says given the postal code of the condo, the bank gave him three options:
- Get increased insurance, which wasn't necessarily available for a place within a flood zone.
- Get a home inspection, which it would be his responsibility to pay for.
- Put down 50 per cent of the purchase price.
After the floods, the Alberta government released detailed maps of flood plain and flood fringe zones that marked areas of the province facing a high risk of future damage from floods like the one in June.
However, those maps weren't demarcated based on postal code.
Postal code policies difficult to navigate
The decision for a blanket policy based on postal code lies with the individual banks and insurance companies — and many of them are based on Toronto not Alberta.
"The important thing to understand is that these decisions are not being made in Alberta," said Don Campbell, a senior analyst with the Real Estate Investment Network.
"They're saying, 'We need our financial assets covered,' and are really pushing bank on a lot of potential buyers.... There's a lot of concern in that world."
In some flood fringe zones that weren't even affected by the floodwaters, Campbell said insurance has increased between 80 to 100 per cent and deductibles have gone up to $20,000.
For buyers, navigating these new rules and policies can be a seemingly impossible task, given that each company and bank is different.
A postal code marked as high-risk by one company might not be by another but often, potential buyers aren't told in advance about the restrictions. Some of the financing rejections are even in the city's highlands, simply because they are in the same postal code as lower areas.
Brave new world of financing
All of the complications around financing is one reason why Campbell suggests people looking to buy in Calgary or other flood-affected areas consider using a mortgage broker who knows how to navigate the policies and stickhandle the banks.
"It's really important for anyone buying in Calgary right now to understand this one key thing — the floods have turned the purchasing market upside down," he said.
Pre-flood buyers would normally buy a property, get their financing, do the closing documents and then look for insurance.
Campbell says buyers now need to contact both their bank and insurance companies when they write the offer to see if there are issues — even if they are pre-approved.
Financing freeze chills sellers
It's not only buyers being affected by the new freeze on financing.
For sellers, finding someone who is able, not just willing, to buy their home is more challenging than ever.
"Buyers are willing but the financing is not willing," said Campbell. "What's going to be really interesting for sellers is [they're] actually going to have to really sell [their] house instead of just list it in these tougher communities."
For those looking to sell, Campbell says it could be all about opening up their little black book of repairs.
He recommends keeping a book at any open houses that details any repairs made, including a city permit, details of how it was done properly, contact information for the current insurance company and information on whether they are willing to continue insuring the house.
Having all of the information in advance will be critical for would-be buyers dealing with skittish banks, many of which are sending in a second home inspector to make sure the property is up to their standards.
High ground property values rise
In spite of the difficulties in buying and selling in Calgary, property values for homes on high ground have risen.
The city welcomed new residents last year from other Canadian cities, many who made the decision to move after watching flood coverage on TV.
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"[They're] saying, 'I'll move there but I'm not moving to any of these regions," Campbell said. "The demand has been felt a lot in these higher areas but also, it's really important to note that the market is so tight right now, there's just not, in essence, [any] listings for sale."
With buyers facing looming job start dates and move-out deadlines, the pressure to find a home in the city eventually leads many to look in the lower elevation areas, forcing them face-to-face with the vicious circle of Calgary's financing drought — and it's not likely to improve any time soon.
"It's an interesting process that's probably going to take a year, a year-and-a-half to work its way through," said Campbell.
"But let's be realistic. You live in Bowness — you're right near the river, you're a nice and close drive to the Rockies. It's a great place to live. It just might not be a great place to finance."