The big risk

“For what it’s worth,” she said yesterday, “I’ve seen a noticeable uptick in activity just this week. Both buyers and sellers appear to be re-engaging.”

That comes from a pal who’s also a realtor (but a moral one), working a hunk of the outer GTA where prices are high and sales have been few and far between for the last three years. It echoes the reports coming in from the highly-urban hoods as well. If properties are correctly priced (in other words, 25% less than in 2024) they’re attracting more attention than a retriever in heat at the dog park.

But wait. How can this be?

Mortgage rates just went up. There are serious wars out there. Trump’s nuts. Tariffs hurt. The jobs market is weak. Gas is two bucks a litre. Trade talks are uncertain. Surveys show half of us can’t outlast one missed paycheque. Poilievre says Canada’s circling the drain. And the economists in the comment section swear the market’s headed for a 50% price swoon.

Meanwhile, the federal bank regulator (OSFI) is busy throwing gas on the doomers’ bonfire saying it expects more people will fall behind on the mortgage payments or worse – go into default – over the next two years.

Of the 3.1 million households with mortgages up for renewal this year and in 2027 (which represent 52% of all outstanding home loans), about a quarter have cheapos taken out during or just after Covid. This is a problem, says OSFI. “We expect these mortgagors will experience material monthly payment increases.”

And here’s the risk:

Relative to late 2022, house prices have fallen and interest rates have increased, which has resulted in a modest subset of these borrowers having current loan-to-value ratios and debt service ratios, higher at renewal than at origination. This could impact these borrowers’ ability to refinance or leave them unable to manage their higher payments.

With today’s higher loan rates some may be unable to afford the bump in their monthly costs. At the same time those who bought pre-con units back during the days of low rates and high FOMO may be in for a shock as they approach closing and bank appraisers chop valuations. Mortgage amounts are reduced. Buyers must cough up a ton more cash, or fail to close, facing legal action.

“Many new condos are now worth less than their presale purchase prices,” the bank cop notes. “Condo price declines are resulting in financially stressed borrower positions upon closing, as borrowers may need a larger down payment to qualify for their mortgage. The near standstill in new condo activity and condo construction builds is straining builders and has negative implications for the labour force they employ.”

And just to freak everyone out further, the regulator raises an alarm over the role of hedge funds and private lenders these days – outfits that have assumed a bigger role in the nation’s financial life recently.

Hedge funds use a ton of leverage, which amplifies risk. “When market stress triggers rapid unwinds, federally regulated institutions could face increased counterparty risk, margin disputes, and potential liquidity strains – and in extreme cases, losses on collateralized positions,” says OSFI.

So, you have a lot to worry about, besides arguing over your mother-in-law and discovering what the dog threw up behind the couch, Life’s complex. Risk abounds.

So why would some people be out there this spring shopping for real estate?

Because more than interest rates, geopolitical conflicts, income levels, trade deals or equity markets, it is buyer sentiment that makes housing rise or fall. If people desire homes more than they fear the future, they buy. If they perceive opportunity is greater than risk, they make an offer.

Currently there are as ton of properties – new and resale – up for grabs. Prices have dropped by up to a third in many areas. Sellers are flexible to the point of desperation. Conditional offers are back, allowing buyers to be more confident about financing or the physical condition of a house or to base their offer upon the sale of an existing home. Financing charges are less than a year ago. Competition among buyers has faded. In most places blind auctions, bully offers and bidding wars are gone. It’s a buyer’s market. And it’s spring. Hormone season.

What the doomers don’t understand is that real estate can revive even when average people cannot afford average homes. The days when a house is valued at three times normal income levels are gone in urban Canada. Those times will not be returning – unless the economy fails. Then we all have far more to worry about.

Yes, risks are ample. In your face. Scary.

But people still want homes. Demand has been building and at this moment real estate is far cheaper than it used to be. We’re back to 2020 pricing in many areas. It does not take a stampede of buyers to change the market’s chemistry, fast.

Are we at a market bottom?

No idea. But probably near. You’ll know for sure after you missed it.

About the picture: “Here are the obligatory dog pics,” write Ross and Aneta in a note asking about foreign exchange rates. “Henry (Chinese Shar Pei, 3 yrs) and Louie (French Bulldog, 9 yrs). Henry became too large for breeding, so we adopted him at 6 months of age and then shortly thereafter Louie came to us as an abandoned rescue (his 3rd and hopefully last home).”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2026/04/15/the-big-risk/