Osfi Warns Major Canadian Banks as Condo Appraisals Face a Sharp Reality for Lenders and Renters

In an October meeting laid out in internal minutes, regulators told banking executives that osfi warns major canadian banks about a common appraisal practice just as the condo market has corrected sharply. The regulator flagged that blanket appraisals tied to purchase‑agreement values may leave lenders exposed when prices fall.

Osfi Warns Major Canadian Banks: What did the regulator say?

The minutes show the Office of the Superintendent of Financial Institutions (OSFI) warned major lenders that using blanket appraisals — valuing pre‑construction condos at purchase‑agreement price rather than value at closing, sometimes across multiple units — can be problematic in a cooling market. OSFI warned that failure to respect the 80% loan‑to‑value expectation on uninsured mortgages “could result in uninsured mortgage loans exceeding 80% of the market value of the property at origination and constituting a potential breach of the Bank Act. ”

OSFI noted that blanket appraisals “work well when property values are increasing but are definitely more challenging when the property market softens. ” The internal minutes say the caution came as pre‑construction prices in some projects dropped roughly 10%–30% from their 2022 peak.

How are lenders and the market reacting?

The minutes reference examples of lender marketing that promised buyers lasting approval up to closing, which the regulator flagged as a timing risk in a falling market. One bank changed the language on its pre‑construction mortgage page after the meeting — removing wording that said, “Once approved, you stay approved until your closing date” and replacing it with: “At RBC, we offer mortgage approvals based on the closing date provided by the builder. “

The Canadian Bankers Association is in talks with OSFI “to ensure any possible financial implications are taken into account” as expectations around blanket appraisals evolve. The minutes link that regulatory pressure to a broader correction in the condo segment and to data from market bodies showing a sharp pullback.

What does the market data and expert voice show?

The internal minutes cite housing statistics that capture the scale of the correction: one measure shows national prices fell 2. 7% in the referenced period and Toronto‑area figures show an average sale price that has tumbled to $626, 650, a decline of about 21. 7% from its 2022 peak. Greater Toronto Area condo sales dropped to 1, 088, more than 60% lower than the same time four years earlier. The minutes link the slowdown in condo sales to rising inventory and changing investor behavior.

On the rental side, the minutes note that average Toronto rents were down 7. 1% in 2024 and that condo rents fell 5. 2% nationwide in the period cited by Canada Mortgage and Housing Corporation (CMHC). Kevin Hughes, CMHC deputy chief economist, said, “We’ve seen a big increase in supply, and that has kind of resulted in some markets being a little bit less tight, ” while stressing that “overall in Canada, we’re still facing a very tight rental market. “

What is being done and what comes next?

Regulator guidance, changes in bank marketing language and industry discussions are the immediate responses documented in the minutes. OSFI has put blanket appraisals under scrutiny and banks are engaging with the regulator to align practice with the 80% loan‑to‑value expectation for uninsured mortgages. The minutes present industry engagement — including the Canadian Bankers Association’s discussions with OSFI — as part of an evolving approach to appraisal timing and lender disclosures.

Observers in the minutes suggest the condo sector will eventually recover, but they also warn the turnaround will be slow as inventory and affordability pressures persist. Mike Kazarian notes the sector will eventually recover, while the minutes emphasise the timing challenge of appraisals during a price correction.

Back in the October meeting, the quiet warning was less about immediate losses than about a rule‑bound vulnerability: when purchase agreements outpace market values at closing, lenders and borrowers can be left with mismatched expectations. The reminder in the minutes is clear — osfi warns major canadian banks that appraisal timing and loan‑to‑value expectations matter most when markets stop climbing.