Canada’s financial system remains stable overall, but emerging pressures particularly from high household debt, a weakening housing market, and global economic uncertainty are raising concerns, according to the latest annual risk outlook from Office of the Superintendent of Financial Institutions (OSFI).
In its April 14 report, the regulator highlighted a shifting risk landscape shaped by slower economic growth, a softer labour market, and ongoing geopolitical and trade tensions. While some progress has been made in stabilizing conditions, OSFI warned that near-term threats continue to weigh on the economy.
A key area of concern is the housing sector. Real estate activity has slowed significantly, reflecting weak consumer confidence and broader uncertainty. Major markets such as Toronto and Vancouver are seeing declining home sales and falling property values, trends that are beginning to place financial strain on borrowers.
The condominium segment is under particular pressure. Sales have dropped to levels not seen in decades, leaving a surplus of unsold units. As a result, prices have fallen sharply, with some newly built condos now valued below their original presale prices an indication of the imbalance between supply and demand.
Compounding the issue is an upcoming wave of mortgage renewals. Many homeowners who locked in historically low interest rates during 2021–2022 are now facing significantly higher borrowing costs. This shift is expected to increase monthly payments, putting additional strain on household budgets and raising the risk of refinancing difficulties.
Beyond housing, OSFI also flagged growing vulnerabilities linked to non-bank financial institutions. Hedge funds and private investment firms are playing an increasingly prominent role in credit markets, often using high levels of leverage. Stress within these entities could spill over into the broader financial system, particularly through connections with traditional banks.
The report also pointed to several structural risks that could intensify financial instability if conditions worsen. These include weaknesses in commercial real estate, the rapid integration of artificial intelligence, rising cyber threats, dependence on third-party service providers, and concerns around financial crimes such as money laundering.
While mortgage arrears remain relatively low by historical standards, they have started to edge upward as borrowers adjust to higher interest rates. With inflation still affecting living costs and borrowing becoming more expensive, some households are finding it increasingly difficult to manage their debt.
Despite these challenges, Canada’s banking sector continues to show resilience. However, OSFI cautioned that sustained economic pressure could tighten credit conditions and increase the burden on borrowers, potentially leading to a gradual rise in mortgage defaults.
Looking ahead, the housing market is expected to remain subdued. Forecasts suggest home sales could weaken further into 2026 as affordability challenges persist and buyer confidence remains fragile.
Overall, the report paints a picture of a financial system that is stable but increasingly tested where underlying vulnerabilities, if left unchecked, could become more pronounced in the face of ongoing economic uncertainty.
