Canadian Real Estate Prices Propped Up By Longer Repayment: Bank Regulator

A few weeks ago, we revealed that sky-high Canadian real estate prices are supported by extended amortizations. It turns out someone else agrees—Canada’s bank regulator, the Office of the Superintendent of Financial Institutions (OSFI). In a letter to the House of Commons Standing Committee on Finance, OSFI explains that removing the ability to extend amortization could exert downward pressure on home prices. The world’s biggest real estate bubble obviously can’t allow downward pressure on prices.

Canada’s Banks Are Extending Mortgage Repayment Terms For Overleveraged Borrowers

One of the most ridiculed parts of the US housing bubble in 2006 was the proliferation of interest-only loans. How could they only be repaying the interest, and perpetually carrying a balance? In Canada, that would be considered prudent management, with many repayment terms failing to adequately cover the interest. 

Earlier this year, we took a dive into Big Six bank filings and found a sharp increase in the remaining length of mortgage amortizations. Just a year ago, Big Six bank portfolios had just a point or two worth of mortgages with remaining amortizations longer than 30 years. We suggested this can artificially prop up home prices, and even drive them higher by creating moral hazard. 

In Q1 2023, a significant share of Big Six portfolios had mortgages with amortizations longer than 30 years. Four of the Big Six reported at least 1 in 4 mortgages had at least 30 years remaining—BMO (32% of its portfolio), CIBC (30%), TD (29%), and RBC (27%). That’s a huge jump from just 1 or 2 points, with the remaining two banks showing no change from historic trends—emphasizing this isn’t a widespread trend, but lender specific.  

Canada’s Bank Regulator Admits Extending Amortizations Helps Keep Home Prices High

OSFI agrees with the potential impact on home prices. The regulator provided a written response to the Committee, which asked if home prices would fall more or less if amortizations were being extended to accommodate the inability to carry the debt comfortably. 

“Taken by itself, removing the ability to extend amortization periods could exert downward pressure on some house prices, as it reduces the options available to help some borrowers meet their financial obligations,” reads OSFIs response. 

That’s a logical take. Extending repayment terms allows greater credit capacity, helping to push prices higher. The price of an asset can only rise as high as someone is willing and able to pay. A Beanie Baby worth $100 million is just a fantasy unless someone is willing to pay the price when you’re ready to sell, right?  

Selling one or two $10 million homes is relatively easy, but all homes can’t sell for that price. A typical home is bought with a mortgage, and a typical family can’t afford the repayment term. They can only be pushed to their limit, and since most people don’t want to lose their home, they try to avoid being pushed to that limit.  

By extending the amortizations lenders are shrinking payments at the expense of longer repayment. Anyone can repay anything over a long period of time. You might not be able to afford all of the lessons to learn about Xenu this decade, but you can sign a billion year contract and work out repayment terms. 

That’s the amortization issue in a nutshell. Overleveraged borrowers, a significant share that are investors, borrowed too much for them to repay with their income level. Inefficient inventory should be reappearing on the market, but longer repayment terms lowered monthly costs. It also helps to improve investor cash flow. 

Policymakers Are Creating Moral Hazard By Allowing Longer Repayment Terms

The secondary impact of this trend shouldn’t be understated—moral hazard. Risk is what keeps borrowers and lenders from engaging in bad deals that are inefficient for the market. Each time the state or a lender steps in to ensure risk doesn’t fall on the party engaged in risk, it tells them the risk isn’t real. This results in moral hazard, or the act of entering a deal in bad faith knowing the perceived risks are unlikely to materialize. 

When perceived risk disappears, all heck breaks loose. Paying more than you can comfortably afford, or ensuring you don’t max out your credit, seems like a smart idea. Until you see people that engage in those risky moves being rewarded by policymakers and have zero consequences. Not only do the overleveraged borrowers feel like geniuses, those that played it safe get punished. 

In the case of housing, Canada’s speculators and over leveraged borrowers win. Not being able to pay your bills didn’t result in having to trim back, instead special accommodations were made. Now they have improved cash flow, and an asset once again surging by over $10k/month.  

At the same time, those that played it safe weren’t rewarded for their prudence. They’re left in a more risky situation, since they’re watching shelter costs soar. As a result, they’ll begin to engage in moral hazard—buying homes knowing the risks don’t make sense, but counting on policymakers to side with preserving home prices. It’s not a bad bet, considering many policymakers are just acting to preserve their own investments. 

It’s Spelt “Extended Amortization,” But Pronounced “Investor Bailout”

The tricky part here is the narrative of helping borrowers meet their financial needs. When people hear this, they likely think of first-time buyers and families that were hit with rising rates. The reality is that most owner-occupied homes with mortgages were bought at a significantly lower price prior to 2020. The average mortgage payment is still lower than the monthly rent on a 1-bedroom apartment. 

A share of recent buyers also jumped into the market and got in over their heads. They were stress tested for their loan though, and should be able to handle those higher mortgage payments. It might not be fun, but they were tested to ensure they could repay at higher interest rates.  

The biggest borrower being helped by the pseudo-regulatory bailout are recent investors. Low rates helped investors capture up to 90% of new housing supply, zeroing in on the most affordable homes. Low rates also helped investors outbid first-time buyers for existing home sales, becoming a larger market share. RBC, Canada’s largest bank, even called it a “systemic issue” and “sad” state of affairs that investors are replacing first-time buyers at this scale. 

These aren’t traditional real estate investors that are looking to make money on value. They’re largely speculator-landlords (speculords), that bought negative cash flow properties. Every month they top up the rent to cover the bills, a trend across Canada that’s long been the case in pricey cities like Toronto. BMO warned that investors that were cash flow negative at 1.5% mortgage rates are now deeply cash flow negative at today’s 4.5%

That is, unless you lower the monthly payments by extending the amortizations for significantly longer. Policymakers can be generous in circumstances where they’re the ones exposed to risky speculative positions. What a coincidence, eh? 

“In addition to the real estate holdings of Liberal cabinet ministers — notably including Prime Minister Justin Trudeau, Deputy Prime Minister Chrystia Freeland, Housing Minister Ahmed Hussen and cabinet ministers David Lametti and Francois-Philippe Champagne — 38 per cent of the MPs in all parties are real estate financiers or landlords.” 

Douglas Todd, Vancouver Sun 

Extending mortgage amortizations will prevent short-term defaults, as well as give investors more time to exit holdings. It’ll come at the expense of greater moral hazard and a larger risk, that’ll be more difficult to contain and mitigate in the long run. 

A once prudently regulated financial system is putting it all on the line for high home prices, smack in the middle of a housing crisis.



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  • Mike 1 year ago

    Right, we sent the PM and MPs to the office to play for their own interest.

  • Woolsock 1 year ago

    Oie. “It’s spelled ‘extended amortization’ […]”, not “spelt”.

    Spelt is a gluten free flour alternative used in baking. Spell is the root word you’re looking for. Unlike “dealt”, “spelled” has two L’s – always has, always will have.

    • Allen B 1 year ago

      Actually, spelt is the correct spelling in most of the English-speaking world outside of the US.

    • Steve O 1 year ago

      For all intensive purposes, you are correct.

    • Ray 1 year ago

      Thanks for your uncalled for grammar lesson.

    • Luigi Vampa 1 year ago

      It’s proper British English, try looking in a dictionary… This is a Canadian blog. It’s the saddest kind of people that correct meaningless spelling errors, so I’m not sure what that makes people who are also wrong about said corrections.

    • John 1 year ago

      Found the aspergers reddit guy.

    • B 1 year ago

      Spelt is not gluten-free.

    • Celticspyder 1 year ago

      “spelt” is an acceptable past tense of “spell” from UK English – like we spell “favour” instead of “favor” and use “ce” instead of “se” in some words

    • JCH 1 year ago

      Not so much – spelt is definitely not gluten-free! It’s still wheat, just not a modern wheat. So some people tolerate it better, but someone with celiac still cannot consume spelt. Or “spelled” flour 🙂

    • User 1 year ago

      In UK English “spelled” or “spelt” are both past tense for the verb “spell”. We mostly see the US “spelled” in Canada, which is probably why it looks weird to you, but “spelt” isn’t wrong.
      PSA, Spelt flour is a type wheat and not gluten free, so don’t give it to your celiac friends. 😀

    • Anonymous 1 year ago

      Actually, “spelt” is the typical spelling in the UK, and although “spelled” is much more common here, both are acceptable.

      It’s interesting that this seems like one of the few cases where Canada prefers the American spelling.

  • Mark Sibthorpe 1 year ago

    Woolsock, I like your kind of brutal, savage grammar attacks. As for the idea of stipping ‘extended amortization,’ I would say that the schadenfreude side of my psyche loves this. On the other hand, should these people be thrown under the bus thanks to years of poor government policies? I personally would prefer paying lower income tax and increasing property taxes on second dwellings. This would end speculation. Maybe kick AirBNB to the curb as well.

  • AtroubledCanadian 1 year ago

    “…that’ll be more difficult to contain and mitigate in the long run. ”

    Right around the time the Conservatives win the election, I reckon.

    • Sergey 1 year ago

      Do Conservatives have a plan for real estate? They would have been wise to have one that would really work and would involve not just financial tools but real plan to both drop the prices and start real construction for people, not investors. The whole system must be completely dismantled to stop this madness. it has gone way too far. They are doing everything now to keep party up despite it already ruining society in the long run. That’s cancer.

  • Sam 1 year ago

    Seems like extended amortizations should only be allowed for a primary residence. No regulatory help for investment properties, summer homes, or places owned by numbered companies.

  • Ryan Monsurate 1 year ago

    The commentary while accurate and insightful is depressing. You’re describing a cancer that has metastasized. What hope do we have that the government will stop bailing out homeowners. At this point none. The government is incentivizing everyone to max out their debt financing to buy any real estate they can before we return to feudalism by another name.

  • SadforCanada 1 year ago

    Great article … this country is screwed either way now, it’s past the point of no return… BoC policy is in direct contrast to the Gov/Banks.

    Tiff will be forced to tighten even more now… and I guess he’ll have to push it until even the banks don’t want to extend further lol.

    Easy solution: Extended amortizations should be for principal residence only IMO.

    Let investors get their market price, and bring back affordability, protect families.

    Very sad we’ve be turned into a housing ponzi 🙁

  • george 1 year ago

    sleep tight Canada’s younger generation….the wolfs are in charge of the herd … the sooner you wake up the better…until then, complain and suffer, no one will come to save you…it is up to you to make the change.

    • BrokeCanadianMillennial 1 year ago

      Is this a dog whistle for “GTFO ASAP young skilled Canadians to the USA where the salaries are higher, the currency stronger, and cost of living more reasonable?”

      This country is so over, it’s funny. I can’t imagine a faster and more stupid way to be destroyed than what we’ve done in the last 8 years. We definitely deserve it. Vote with your feet young peeps! Don’t be held hostage by a bunch of economic illiterates that can’t do basic math.

  • Ike 1 year ago

    Is it a crime to invest money into a legal asset such as real estate? No.

    So why why are they written about like they’re criminals derserving of punishment?

  • PaulT 1 year ago

    It feels like policymakers are ‘playing god’ with the natural forces of the housing market. This is wrong in so many ways. Of course the money lenders are lapping this up with interest payments for properties that won’t ever be owned, well not by the generation of the family who took on the original mortgage. And how hypocritical will the policymakers and lenders look, when they claim to be concerned about the housing crisis and cost of living in general.

  • Sergey 1 year ago

    Essentially this government and banking sector threw Canadians under the bus. I however see no protests from younger generations and majority continue to vote same parties and people responsible for current state of affairs. It looks like the future shown in Avatar and Fifth element with people living in 2X4 sq. meters cubicles is not far fetched. The root of the problem is basically political and of the world view where markets are always right and no interference from the government and especially government led programs are allowed. I would like to remind but Canada did have government led building program after WW2 and it was success.

  • Niki Hunt 1 year ago

    It’s all going to come crashing down eventually as it should. Real estate is extremely overpriced and this cannot last. People in Canada can stop paying rent and it is very difficult to evict renters in Canada. It’s happening more and more as people cannot afford the ridiculous rents. Good luck!

  • andrew glazar 1 year ago

    Stephen needs to run for mayor!

  • DB 1 year ago

    As some one priced out of the market in 2 years time, I’m absolutely sickened. The politicians and the boomer generation are stealing my future. I hope it all burns and they lose everything.

  • Samuel Judge 1 year ago

    The price is always influenced by many factors, starting from the area and even the roof that was put on the building, ending with the market and supply/demand. But, it is always realistic to find something within your budget, it just takes time.

Comments are closed.