Canadian Banks Now Relying on Home Sales to Recover $7B in Losses

Canada’s housing downturn is beginning to show up in a new and concerning way.

According to a recent report from Better Dwelling, Canadian banks are increasingly relying on selling homes from delinquent borrowers to recover losses, with billions now tied to distressed real estate.

New data suggests this trend is accelerating quickly.

Banks Now Expecting to Recover Billions Through Home Sales

Preliminary filings from the Office of the Superintendent of Financial Institutions show that uninsured mortgage net impairment has surged to approximately $7.2 billion in Q1 2026.

This figure represents the amount banks expect to recover by:

Seizing homes from borrowers who are unlikely to repay
Selling those properties to offset losses

This is not a small shift.

The amount has increased:

150% since 2022
Nearly 15% year-over-year

What “Net Impairment” Actually Means

Net impaired mortgage debt reflects loans that banks believe may not be fully repaid.

More specifically:

These are typically mortgages that are 90+ days past due
Banks classify them as “Stage 3” credit, meaning repayment is uncertain
Lenders set aside funds for expected losses, but still rely on selling the home to recover the remaining balance

In simple terms, this is money banks are counting on getting back by liquidating real estate.

The Problem: Falling Home Prices

While the amount banks expect to recover is rising, home values are moving in the opposite direction.

Since 2022:

Canadian home prices have fallen roughly 21% from peak levels

This creates a major risk.

If homes are worth less than expected, banks may not be able to recover the full value of delinquent loans, especially in cases where buyers purchased near the peak.

Investor Segment Under Pressure

While it’s often assumed that struggling borrowers are primarily households, data suggests the issue may be more concentrated among investors.

According to Better Dwelling:

Growth in impaired mortgages is largely tied to investor-heavy segments
Many long-term homeowners still have significant equity
First-time buyers were often priced out during the peak

This shifts the narrative away from individual hardship and toward systemic risk within investment-driven housing activity.

Pre-Construction Risk Is Emerging

One of the biggest concerns is tied to pre-construction housing.

Banks have increasingly relied on:

“Blanket appraisals”
Valuations based on prices agreed to years earlier

With home prices now significantly lower, there is growing uncertainty around whether those properties are still worth their original appraised values.

This raises an important question:

👉 How much of that $7.2 billion in “recoverable” debt is actually backed by real equity?

A Growing Issue for the Next Two Years

The data suggests this is not a short-term spike.

Instead, the trend is expected to:

Continue rising through 2026 and beyond
Put additional pressure on banks and borrowers
Increase the number of distressed property sales entering the market

There are also indications that tensions are growing between regulators and major banks over how these risks are being managed.

What This Signals for Canada’s Housing Market

This development highlights a shift in the housing downturn.

Key takeaways:

Mortgage distress is rising, particularly in investor segments
Banks are increasingly dependent on selling homes to recover losses
Falling home prices could limit recovery values
Pre-construction exposure may amplify risks

While this does not necessarily signal a crash, it points to growing stress beneath the surface of Canada’s housing market.

References

Better Dwelling. (2026, March 26). Canadian Banks’ $7B Side Hustle: Involuntary Real Estate Liquidator – Better Dwelling

Office of the Superintendent of Financial Institutions. (2026). Mortgage impairment and bank filings data. Retrieved from https://www.osfi-bsif.gc.ca

Canada Housing Market