Last week, CMHC published a piece titled “Is Toronto’s condo market downturn a repeat of the 1990s?”
Their answer, unsurprisingly, was no.
Unlike the 1990s, they argue that developers must pre-sell 70 percent of units before starting construction, which makes today’s market more disciplined. And because we have a structural housing shortage, CMHC concludes that any current softness is just a period of adjustment before prices rise again.
The problem is that CMHC’s view of the condo market is not grounded in reality.
CMHC’s analysis assumes that prices, appraisals, and loan-to-value ratios reflect real market conditions, meaning the appraised value of a property aligns with what it could actually sell for today.
That assumption no longer holds.
Many condos completing today are worth less than what investors paid for them. In a functioning market, if you paid $1.2 million for a unit now worth $900,000, your lender would finance only what the property is actually worth, and you would have to come up with the difference.
That is not what is happening.
Banks are quietly using blanket appraisals, effectively pretending that pre-construction purchase prices still reflect market value. This allows investors to close without putting in the additional equity they do not have and prevents a wave of defaults that would expose how far prices have actually fallen.
Once you recognize that distortion, CMHC’s entire premise — that the market is stable and risk is contained — falls apart.
Mortgage books appear healthy because collateral is being overstated.
Default risk appears low because banks are valuing these condos above their true market worth.
In other words, Canada’s banking system is not reflecting reality. It is managing optics.
Our financial regulator appears more interested in keeping prices propped up than in enforcing basic lending standards.
This is not just about individual borrowers. It is about systemic risk being hidden behind manipulated valuations.
We have reached a remarkable point in Canada when the most candid assessments of the housing market are not coming from our national housing agency, but from the people on the ground who see how the system really works.
John Pasalis is President of Realosophy Realty. A specialist in real estate data analysis, John’s research focuses on unlocking micro trends in the Greater Toronto Area real estate market. His research has been utilized by the Bank of Canada, the Canadian Mortgage and Housing Corporation (CMHC) and the International Monetary Fund (IMF).
Have questions about your own moves in the Toronto area as a buyer, seller, investor or renter? Book a no-obligation consult with John and his team at a Realosophy here: https://www.movesmartly.com/meetjohn