Falling condo values squeeze banks’ risk buffers and keep buyers sidelined across major cities
Condo lending has become a weak link in Canada’s housing correction, just as the country posts some of the steepest home price and affordability declines among advanced economies.
According to a Reuters Exclusive, the Office of the Superintendent of Financial Institutions (OSFI) warned bank executives in an October meeting that widespread use of “blanket appraisals” on condominium mortgages could breach a federal mortgage rule.
Under the Bank Act, banks cannot issue uninsured mortgages that exceed 80 percent of a property’s market value at the time of closing.
Blanket appraisals let lenders rely on the property’s value when the buyer signs the purchase agreement, not when the unit closes, and are often used to approve multiple units at once.
In a falling market, that gap can push loan‑to‑value ratios above the legal limit.
Reuters said it obtained the October meeting minutes through an access to information request.
In that session, OSFI told banks that failure to follow the 80 percent loan‑to‑value expectation “could result in uninsured mortgage loans exceeding 80 percent of the market value of the property at origination and constituting a potential breach of the Bank Act.”
OSFI also said that when banks do not meet its rules, it discusses “resolution and remediation activities” privately with the lender, without detailing what remediation involves.
The risk sits against a sharp housing correction.
Reuters reported that Canada saw one of the largest housing price declines among major economies last year, with prices falling 2.7 percent as Canadians delayed buying due to US trade uncertainty and slower immigration.
Declines of 10 percent to 30 percent in pre‑construction housing prices have left banks exposed to buyers defaulting or walking away from condo purchases that now appraise lower.
Unsold condos in cities such as Toronto and Vancouver have led to thousands of unoccupied units in downtown towers after a rush by commercial builders between 2018 and 2022.
OSFI told banks in October that the blanket appraisal model “works well when property values are increasing but is definitely more challenging when the property market softens.”
In a November meeting, OSFI pointed to marketing language by large banks and said the timing of blanket appraisals was a problem as condo prices had already fallen roughly 10 percent to 20 percent from their 2022 peak.
Reuters said OSFI highlighted a lender’s promotion offering “firm approval” aligned with the builder’s closing date and telling customers they would remain approved up to that date.
That line appeared on Royal Bank of Canada’s pre‑construction mortgage website as of November 18, based on the Internet Archive’s Wayback Machine.
RBC removed language saying buyers would “stay approved until your closing date” and replaced it with wording that links mortgage approvals to the closing date set by the builder.
In response to Reuters’ request for comment, RBC said it worked closely with regulators to ensure it met their expectations.
The Canadian Bankers Association said it is in discussions with OSFI about expectations for blanket appraisals during the pre‑construction stage.
The correction also stands out globally.
The Financial Post reported, citing the Bank for International Settlements (BIS), that inflation‑adjusted house prices in Canada fell 5 percent in the third quarter from a year earlier, the largest decline among similar advanced economies.
Looking beyond that quarter, BIS data show Canadian home prices dropped 18 percent in nominal terms between the first quarter of 2022 and the third quarter of 2025, compared with a 17.8 percent decline in China over the same period.
Under the surface, construction and activity look weaker than headline numbers.
The Financial Post reported that housing starts rose 5 percent in 2025 from 2024, according to Canada Mortgage and Housing Corp. (CMHC).
But CIBC economists Benjamin Tal and Katherine Judge argued that the real level is much lower because CMHC only counts a start when the foundation is poured, often one to two years after work begins on large multi‑family projects.
Drawing on Urbanation and Zonda data, CIBC estimates that true housing starts are 50 percent lower than official counts in the Greater Toronto Area and 30 percent lower in the Greater Vancouver Area.
At the same time, the affordability crisis has spread well beyond Toronto and Vancouver.
CMHC said the crisis “is no longer limited to Toronto and Vancouver.”
Its homeownership affordability index, which runs from 1991 to the third quarter of 2025, shows affordability “nosedived” in Ottawa, Montreal and Halifax from 2020 to 2023.
Even Calgary has seen affordability suffer, while of seven cities only Edmonton has held up, the Financial Post reported.
CMHC identified three “waves” of affordability erosion — 2001 to 2007, 2015 to 2020 and 2020 to 2023 — and said the first two waves were driven solely by Toronto and Vancouver.
CMHC chief economist Mathieu Laberge told the Financial Post that affordability has improved slightly since bottoming in 2023, but Canada remains “far from going back to pre‑COVID‑19 levels.”
That backdrop has created a pool of delayed buyers.
The Financial Post reported that Desjardins Group senior economist Kari Norman cited Parliamentary Budget Officer data showing 631,000 “suppressed households” in Canada based on the last census, and she estimates that number has grown with recent population gains.
Norman said measures of housing activity have not rebounded proportionately in the highest‑priced markets, in part because affordability is still too far out of reach for many to move out on their own.
Norman also noted, as reported by the Financial Post, that rents have eased from prior peaks but there is an oversupply of pricier units relative to less expensive ones, and elevated rents have likely prevented many households from saving enough for a down payment.
Laberge said there is a “light at the end of the tunnel” for affordability, but Canada still needs more affordable townhouses, row houses and rental options to fill gaps in the housing market.
