OSFI’s Warning to Major Banks
On March 9, 2026, the Office of the Superintendent of Financial Institutions (OSFI) issued a significant warning to major Canadian banks regarding their appraisal practices, particularly in the context of the declining pre-construction condo market. This warning comes as the real estate landscape in Canada has experienced notable shifts, particularly in the Greater Toronto Area (GTA).
OSFI highlighted that blanket appraisals for pre-construction condos could potentially breach federal mortgage rules. The regulator specifically flagged the 80% loan-to-value expectation on uninsured mortgages as a central concern. This expectation raises alarms as lenders may find themselves exposed to legal risks if property values continue to decline.
In the past year, the condo market has seen a dramatic correction, with pre-construction prices in some projects falling between 10% and 30% from their peak in 2022. The average price in the Toronto Regional Real Estate Board (TRREB) has also dropped to $626,650, marking a decline of approximately 21.7% from its previous high. This downturn is further evidenced by the fact that Greater Toronto Area condo sales plummeted to just 1,088 units, a staggering decrease of over 60% compared to four years earlier.
OSFI’s concerns are compounded by the timing of blanket appraisals, which become problematic in a falling market. The internal minutes from OSFI’s discussions indicate that while blanket appraisals may work effectively when property values are on the rise, their reliability diminishes in a declining market. This has raised questions about the long-term implications for lenders and their practices.
In response to these developments, the Canadian Bankers Association has entered discussions with OSFI regarding the financial implications of appraisal practices. The ongoing dialogue underscores the urgency of addressing these regulatory concerns as the market continues to evolve.
Moreover, the rental market has also been affected, with average Toronto rents decreasing by 7.1% in 2024, and condo rents falling by 5.2% nationwide, according to the Canada Mortgage and Housing Corporation (CMHC). Kevin Hughes, CMHC’s deputy chief economist, noted, “We’ve seen a big increase in supply, and that has kind of resulted in some markets being a little bit less tight.” This shift in supply dynamics further complicates the landscape for lenders and borrowers alike.
As the situation develops, the exact timeline for market normalization remains unclear. The long-term impact of the regulatory changes on lenders and the market is uncertain, leaving stakeholders to navigate a complex and evolving environment. Details remain unconfirmed.
In light of these challenges, major Canadian banks are urged to reassess their appraisal practices to ensure compliance with federal regulations and mitigate potential risks associated with the current market conditions.
