In 2024, Canada recorded unprecedented insured losses of C$8.5 billion—the highest annual figure on record—driven by wildfires in Jasper, severe hailstorms in Calgary, and widespread flooding in major urban centers. Catastrophic events have not only forced evacuations in tourist towns but have also spurred a re-evaluation of property values across the country. For example, regions like Fort McMurray have seen residential prices drop by approximately 16% within one year after repeated wildfire events, a stark reminder that environmental risks are no longer abstract future scenarios but current market realities.

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Research by the Insurance Bureau of Canada indicates that as many as one in ten Canadian homes now faces a high risk of flooding from extreme rainfall and coastal inundation. In areas where flood risk is prevalent, rising insurance premiums—up over 73% in the past decade—are beginning to erode property values. When buyers factor in the higher long-term costs of insuring and maintaining these homes, the market increasingly discounts properties in high-risk zones, potentially leading to a broader revaluation of residential assets across vulnerable regions.

Recent analysis also highlights that Canada’s residential housing stock was valued at 3.1 times GDP in 2023, signaling significant market vulnerability. While some affordable markets like Calgary and Moncton have experienced price appreciations of up to 9–12% month-over-month, larger markets such as Toronto and Vancouver are seeing stagnant or even slightly declining prices. Such regional disparities underscore the necessity for localized risk assessments that reflect the unique environmental challenges facing different parts of Canada.

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Mortgage Lending in a Changing Climate

Canadian mortgage lending is being reshaped by the dual forces of climate risk and rising interest rates. Approximately C$300 billion worth of mortgages at chartered banks are due for renewal in the coming year, with many borrowers facing significantly higher rates than those secured at record lows during the pandemic . For homeowners who purchased properties when borrowing costs were minimal, the prospect of doubling mortgage payments has contributed to market stress and may even prompt some investors to exit their positions.

In response to a recent significant rate cut—the Bank of Canada lowered its benchmark policy rate by 50 basis points to 3.75%—a growing number of homeowners are considering switching from fixed-rate to variable-rate mortgages. Mortgage brokers report that such a move could save an average homeowner around C$4,500 on a typical C$400,000 mortgage, even after accounting for switching penalties. Although many potential buyers are waiting for rates to fall below 3%, experts caution that deeper cuts may not materialize until late 2025, leaving some consumers in a holding pattern.

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Canada’s housing affordability crisis is exacerbated by high household debt levels—over 180% of disposable income among G7 nations—and persistent income stagnation. Despite a slight easing in mortgage rates, many Canadians continue to face prohibitive borrowing costs. In cities like Toronto and Vancouver, soaring home prices and an oversupplied rental market have forced homeowners to reassess their financial strategies, while some experts warn that the risk of mortgage defaults remains high.

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Regulatory and Industry Responses

The surge in catastrophic weather events is forcing insurers to re-evaluate their risk models. With insured losses from natural disasters having nearly tripled from previous decades—averaging C$2.2 billion annually in recent years—the industry is under pressure to raise premiums and tighten coverage terms. These adjustments are crucial for maintaining financial stability, but they also contribute to the downward pressure on property values in high-risk areas.

Regulators are increasingly focused on integrating climate risk into financial disclosures and underwriting practices. Recent studies suggest that improved transparency and risk-based pricing are essential to protect both lenders and homeowners from the long-term impacts of extreme weather events. These efforts are part of a broader initiative to modernize Canadian building codes and financial regulations, ensuring that the real estate market remains resilient in the face of climate change.

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Looking Ahead: Adaptation and Resilience

The Canadian real estate market is at a crossroads. On one hand, climate change poses significant risks that could lead to further property devaluations and increased financial instability. On the other hand, proactive measures—ranging from improved mortgage underwriting to enhanced building standards and risk-based insurance pricing—offer a pathway toward a more resilient market.

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For homeowners, investors, and industry professionals alike, staying informed about these trends is crucial. As climate risks continue to evolve, Coldwell Banker Horizon Realty remains committed to providing the latest market insights and expert guidance to help clients navigate these changes. To learn more, listen to our podcast where we dive deeper into these issues and discuss actionable strategies for adapting to Canada’s new real estate reality.