Canadians will soon answer an age-old question—if home values are inflated to facilitate mortgage leverage, will regulators actually do anything? Canadian lenders are increasingly using blanket appraisals, treating pre-construction contract prices as market value to maximize leverage and close new home purchases. The move shifts risk from developers to buyers—especially those who bought at peak, now holding loans well above the asset’s value.
No need to alert Canada’s bank regulator—they’ve already acknowledged the issue, mostly to dismiss it. Either they don’t grasp the scale of the problem, or they’re quietly praying for the problem to go away. Or maybe preying—depending on who’s left holding the bag.
Blanket Appraisals: How Canadians Keep Their Mortgage Fraud Warm
A blanket appraisal is a single value assigned to multiple new construction homes, validating the contract price—not the market value. To fully appreciate this, it’s helpful to know how financing a pre-construction home purchase works.
Pre-construction buyers don’t initially get a home—they get an assignment—the right to purchase a future home. Until the unit is complete, buyers only need to follow the deposit schedule, and aren’t qualified for financing yet. Only when the unit is completed and ready to transfer does a buyer need to cover the full purchase price, with most opting for a mortgage. Loans can be up to 80% of the appraised value of the home, with the buyer needing to have at least a 20% equity stake.
In a rising market, that’s easy. During Toronto’s 30% price surge in 2017, buyers often encouraged regular appraisals to lock in unrealized gains as equity. Blanket appraisals weren’t needed—appreciation covered any gap.
When prices fall, it can get messy. A 20% drop means the buyer’s deposit is gone, and they must top up the shortfall to their 20% equity based on the current appraisal.
In the wake of the boom-and-bust cycle in markets like Toronto, blanket appraisals have surged. If you have concerns, you’re in good company.
Canadian Lenders Disregard Risk, Quietly Using Blanket Appraisals To Inflate Values, Facilitate Closing
Most condo apartments take at least 3 years from pre-sale to completion—and longer when demand slows. The low-rate speculative boom didn’t start delivering completions until 2023, about a year after prices peaked. Coincidentally, that’s also when under-construction homes became frequent targets of arson. No completions mean no closings—and no need to secure financing.
On the upside, the suspected arson of new homes under construction has tapered with the rise of blanket appraisals.
The timing isn’t a coincidence. A piece in the Star earlier this year openly stated that blanket appraisals are being used to keep deals from collapsing. Instead of using current values, major banks like RBC are backing loans based on the purchase price—a problem even the regulator has acknowledged.
Canada’s Bank Regulator Isn’t Mad—It’s Just Disappointed
Canada’s banking watchdog knows it’s happening, but it’s unclear if they understand the scale of the issue. Earlier this year, OSFI flagged its concerns on blanket appraisals, and the “mismatch in timing between the blanket appraisal and property values at the time the mortgage closes.”
Translation: They’re worried that lenders are using stale appraisals, inflating asset values and amplifying lender losses if the collateral doesn’t exist.
There’s a word for using inflated asset values to back loans sold to investors, but it escapes me right now. Fr… uede? Fauwd? Whatever, we can circle back if I remember.
OSFI Recognized The Risks, But Understated The Scale of The Issue
OSFI considers this a material—but not critical—issue based on volume. It estimates that just 1.2% of mortgage originations (2022–2024) and 1.4% of total outstanding mortgages (as of February 2025) were for newly completed condo apartments. Why a July statement uses February construction data in a subarctic country where it’s too cold to do construction in the winter, is anyone’s guess—but let’s move on.
Yes, blanket appraisals represent a small share of mortgages nationally. But mortgage debt isn’t evenly distributed: nearly one in four mortgage dollars (23%) are tied to Toronto—the market that led the boom, and may be leading the bust.
Toronto Real Estate: Ground Zero For Canadian Mortgage Risks
In the 12 months ending in September, Toronto accounted for 45.4% of all condo completions in Canada. Year-to-date, completions are equivalent to ~60% of TRREB home sales—underscoring just how large this market is. If Toronto’s new home completions was a real estate board in CREA, it would rank third—behind only TRREB and Montreal.
The problem is also just getting started: Toronto—North America’s high-rise crane capital—had roughly 92k new homes under construction in September. That’s a lot of mortgages looking down from the ledge.
Toronto Real Estate’s Inventory Flood Is About To Get Biblical
Toronto real estate: new homes under construction.
Source: CMHC; Better Dwelling.
Pre-construction purchases are investor-driven—especially in Toronto, where they’re 70% of the market. Most investors didn’t plan on closing or having to qualify for financing, but were hoping to flip the assignment before completion. Unless 4 in 5 investors who recently took possession were hoping to lose equity while playing the part of a cashflow-negative landlord, it probably wasn’t the plan.
Despite the narrative, this isn’t about first-time buyers—it’s about dragging investors across the finish line. That became clearer when 30-year amortizations, announced for first-time buyers, were quietly extended to investors just days later.
Most importantly, values are set by the marginal buyer. Appraisals reflect recent comps, not the purchase and resale of every unit over time. For 30+ years, this was the case as prices climbed, inflating household wealth by projecting a relatively small volume of sales over all housing stock. On the way down, it’s just a blip—despite the last “blip” in the ’90s lasting 22 years in real terms.
Are Canadian Real Estate Buyers Being Helped Or Being Set Up?
Sure, using inflated values helps close deals—an easy to appreciate narrative that many sympathize with. In Toronto, the appraisal gap can equal the cost of an entire home elsewhere. It’s easy to see why policymakers might look the other way to let first-time buyers ride out the negative equity.
But is that what’s happening?
Despite sounding like a bailout, this setup is fairly predatory—for investors. Many never planned to close, but now hold cashflow-negative properties, with many peak buyers owing more than the property is worth. To exit, they need to sell that unit into the existing home market, where a typical condo is just 47.2% of the price of a new build in August—or 38.8% for peak buyers. New units carry a premium, but there’s a lot of pressure on that 60% gap.
Toronto Condo Price Gap: New Condos Priced At A Huge Premium
The price of a typical Toronto condo as a share of new condo prices sold by developers.
Source: CREA; TRREB; Altus Group; Better Dwelling.
Buyers who fail to close breach the contract—losing their deposit, and may be held accountable for any shortfall on the resale, plus legal and carrying costs. Developers can easily pursue one or two buyers who breach contracts, but widespread project breaches make it difficult to dedicate resources to pursuing buyers.
Think of mom & pop investors as guppies, developers as the great white shark, and institutional lenders that fund the whole project as orcas. Guppies think they’re predators amongst plankton, but learn they’re prey when a great white needs to feed. If the orca needs to eat, the great white has a bigger problem than finding guppies. A blanket appraisal facilitates the risk transfer, convincing the orca that guppies are an easier meal.
Close the pre-construction deal, and they transfer the risk. Then there are better, more cost-effective tools to extract the debt.
A Plan That Would Make Lehman Blush
There’s an important lesson from the Global Financial Crisis: deep-pocketed investors use bankruptcy as a tool to manage liabilities, and normal people try to pay their bills. Having less capital, most assume mom & pop investors are the primary risk. But history shows us that normal people tend to fear defaults and bankruptcies, and will try to make their payments—even through negative equity.
The primary risk from the financial system’s perspective is the party most likely to cause the largest losses—the developer. Blanket appraisals help transfer risk from a large, single-point of failure (developers), and redistribute it to lower-risk parties (mom & pop investors, first-time buyers). The plan is literally from the US Housing Bubble playbook in 2008, where policymakers believed young adults would ride out losses longer than investors.
Foreclosures are rare in Canada—but not for the reasons most people assume. Lenders have a more powerful tool: Power of Sale. Power of Sale listings have recently surged in Toronto, which allows lenders to sell a property without assuming title. Unlike foreclosures which are a done deal on the property’s transfer, a Power of Sale allows the lender to pursue the borrower for any shortfall. What foreclosure?
Cue the supervillain laugh—in English and French.
Canada’s Setup Would Make US Lenders In 2008 Drool
Let’s put this masterpiece together. After a low-rate-fueled pre-construction frenzy of mom & pop investors, home prices have made a sharp drop. Lenders are now using blanket appraisals to inflate asset values, despite knowing the mortgage may be close to— or already—underwater. The regulator downplayed the risk, enabling a transfer from developers to small investors, many who are now choosing between bleeding as a cashflow negative landlord or paying out of pocket to exit. That shift also makes debt easier to recover, with lenders able to pursue the shortfall indefinitely.
That, my friend, is a heck of a predatory setup.
In short, this isn’t just a market distortion—it’s a systemic risk transfer. Blanket appraisals aren’t helping households; they’re nationalizing risk by allowing lenders to transfer losses and, in turn, transferring liability to individual borrowers. It’s happening directly in front of the regulator, who’s playing naive to avoid rocking the boat. Meanwhile, thousands of new homes are being securitized in a mad panic with artificially inflated equity.
Not sure what’s happening with the bank regulator. It flipped from its going to crack down on risk to playing defense, and ignoring obvious issues.
Is this because it’s toothless or were they whipped into compliance?
Both? OSFI doesn’t have powers that US regulators do. If you pay attention, the only issue “guidelines,” not actual regulations.
You can’t break a guideline, you can only stray from the direction they’ve set.
This is partially why the U.S. Federal Reserve gave TD an ultimatum—move risk compliance into the U.S. where they can pursue criminal charges if it intentional flouts them, or seize to operate in the U.S.
Canada’s banks are basically self-regulated, so no surprise no one’s addressing the border-line fraud occurring by blending mortgage defaults with off balance sheet treatment to artificially lower the reported arrears rate.
Remember when people called you racist for pointing out Brampton loans were widespread mortgage fraud?
That was the point I realized the industry is well aware of the problems brewing, but they’re going to try to hide it by attacking the person who points it out.
Isn’t this just so Canadian though? They make it seem like they are doing something by setting up OSFI but it really does absolutely nothing, just all a show. Meanwhile they do get some tax dollars in assistance to run it. So we are also paying for the joke.
There will be carcasses left on the roadside. There is no way these developers can pin their hopes on blanket appraisals. The more condos that complete the more downward pressure on rent, the deeper the cashflow negative pain, leading to defaults.
The hot potato is landing and despite gimmicks, the banks will be holding the pile of shite.
Excellent article ! Becoming very clear to the average person what is going on and what will ultimately happen if it continues. Clearly the smart money has moved out of Canada or the ones hanging on will be looking for the exit . Maybe the billionaires in power do have a plan . 51st state starting to make a lot more sense now .
yes cause the USA who did this before would never do this agaaain * heavy sarc*
Well… when you put it that way… wtf…
This is when idiots get crunched by their banks. New USA Luxury houses only cost 400K.
Appraisers will get fired fast by banks and lenders.
NATIONAL RUG PULL CHAMPIONSHIPS
As usual you call it like it is.
“Senator Ted Kennedy asked “When does the greed stop?” “Never”
Greed, one of the seven deadly sins, is both toxic to society and intrinsic to human nature. It can’t be ended or “stopped.”
But, it CAN be regulated, which is the goal of good tax policy – Thom Hartmann
Preying and praying work equally well in that first paragraph.
Here is the lesson I guess. Don’t buy a home that isn’t already built. Maybe buy the model home or a slightly older home if you want relatively new.Now you know it’s “value” real or fabricated. For the most part no surprises.
That’s what my takeaway would be if you’re a buyer. The gap between comps in new and existing developments is > 40% in some regions, and many of the places for sale haven’t been lived in or used for more than a few weeks as an AirBNB.
Excellent summary. The point is that housing price has been left to the banks. Thr banks are in a huge conflict of interest here, since profits are maily driven by mortgages and ccs.
The real problem is that the role of ofsi, thd courts, the boc and federal govt should be to rrvilate price, right? But what weve seen so far is the feds are continuinv to pretend that the issue is supply?
The reason for that is twofold, first iz that the carnage will ve in the liberal heartland, and affect their main constifuency. Secondly, the liberals have misused the chmc to extend this boom, leaving you and i with a rock and a hard place.
As the economy continues to deteriorate with the dim carbey ford playboom, we will see a distict choice for the liberals. Back our big y banks who have acted at best as negligent here, or back consumers.
In the usa loan midifications wede used to mifigate the damage. This meant carnage on wall st and oin banking. In canada, it appears that destroying consumers and doubling the national debt is fhe liberal plan?
So what we need is a govt that will maje better choices and move canada into the 21st century. Oh, and in case you think carney can do what he did in 2008-10, thats the reason we are here now, just as the uk is.