According to Urbanation, the number of condo completions in the GTA reached a record 22,473 in 2020, fell to 13,885 in 2021 due to pandemic-related supply chain disruptions and construction delays, and soared to 32,000 in 2022 (in addition to 7,740 purpose-built apartments, which is the highest number of completed units in more than 30 years), with 24,117 unit completions in 2023, 24,386 unit completions in 2024 and – get ready! – 29,800 units in 2025. That’s 146,000+ condo completions in the GTA over 6 years, or 16 percent of all the condos built over the past 60 years. Wowsers!

To provide more context, when the Bank of Canada began raising interest rates in March 2022, about one-third of the 146,000 Toronto condos scheduled for completion by the end of 2025 had been delivered. Over the following 16 months, as the Bank of Canada implemented 9 additional interest rate increases (to a total of 475 basis points), an additional one-quarter of the new condo supply moved into occupancy. It was during this time that the risks associated with purchasing a condominium preconstruction became glaringly evident. The once brisk trade of Assignment Sales – where original Buyers assign their Agreement To Purchase with the developer to a new Buyer for a profit – dried up. In fact, even when the original Buyer was willing to forgo any profit or, in several instances, to forfeit their 20% down payment to extricate themselves from their contractual obligations to the developer, the assignment market remained unalive. Why? Because the pace and cumulative size of the rate hike from near zero to 4.75% in just 16 months was unprecedented in modern central banking history in Canada. The escalation in interest rates instantly eroded the value of all the bricks and mortar in our hugely tethered asset-based economy. Mortgage appraisals on recently completed condos were coming in at 80% of the unit’s original preconstruction purchase price. Higher interest rates pushed up the benchmark rate in the mortgage stress test, shrinking the purchasing power of previously prequalified Buyers. In many instances, the preconstruction Buyers didn’t have additional capital to cover the shortfall between their original purchase price and the new, lower appraised value, so they remained uninsured borrowers.

Although interest rates stopped rising after the last increase in July 2023, the Bank of Canada held them steady for 11 months until June 2024, when it reduced its overnight interest rate by 25 basis points. Since then, we’ve seen four more cuts to interest rates, each by 25 basis points, in 2024, and four this year – two by 25 basis points and two interest rate reductions of 50 basis points over the summer. Of course, everyone is relieved to see these incremental drops, especially all of the new condominium Buyers taking delivery of their units in 2024 and 2025. Although interest rate cuts have brought the policy rate down to 2.25%, a level closer to the mid-2010s (around 3-4.5%), but still higher than the record lows of the 2020s (e.g., 2.79% in 2021), the Toronto real estate market hasn’t had much of a heartbeat, with 2025 poised to be one of the worst in two decades. Since 2021, when prices peaked and a record number of properties sold,  the real estate industry has been running on fumes, generating just over 50% of its 2021 income each of the last 4 years. The reason lay squarely at the feet of the second coming of Donald Trump as US President, whose combative nature, misguided love for tariffs, and desire to annex Canada as the 51st state prompted many Canadians to press pause on purchasing real estate and see whether our economy unravels, leaving the Toronto condo market in a precarious state.

Unfortunately, I worry the condo market will get worse. The data shows that 80% of new condo buyers who put down 20% on their purchase are in negative carry, which means the rental income does not cover the mortgage payment, common fees, and property taxes. The average shortfall is about $600 per month, but for 30% of Buyers, it exceeds $1000 per month. When the Toronto real estate market was firing on all cylinders, speculator investors were willing to endure negative carry because values were soaring. It was worth the risk. However, when values flatline or decline, being a landlord of a poorly designed, poorly constructed, high-density crackerjack box in a sterile placeless landscape becomes a terrible investment. Right now, the cap rate for a Toronto condo is currently around 3.75% to 4.25% – (which was appropriate when the market conditions favoured Sellers, not Buyers, but the current crappy market conditions mean Sellers should anticipate incoming investors seeking a better return on their investment, like a cap rate in the range of 5% to 5.5% which is not unreasonable). This means that the Net Annual Rental Income (say your tenant pays $2500 per month = $30,000 a year gross) which, after deducting the annual property taxes (est $2800/year), the monthly common fees (est $725/month) for 12 months (= $8700/year), plus any additional costs payable by the owner (such as property management services (est $2400/year), accounting (est $600/year), an insurance rider for custom upgrades in the unit (est $350/year), repair and/or cleaning costs (est $800/year) (Total annual costs $15,650 From Annual Rent of $30,000 = Net Annual Rental Income –> $14,350) should be providing you an income (also called the Cap Rate) equivalent to 4% of the value of the condo. Based on a Net Rental Income of $14,350, this extrapolates the condo’s value to $358,000. Well, only a handful of condos have sold in this price range this year, and they are not generating a rent of $2500 per month, which means not only are the current owners of new condos in negative carry, but condo prices have to plummet even further just for an investor to get a 4% return on their investment. If you can put your money in a Guaranteed Investment Certificate when current rates for 5-year GICs are hovering around 3.5% to just under 4%, why would you lock up your money in bricks and mortar when the property has to increase about 7% just to recover your buying and selling costs, and you run the risk of selecting a tenant who knows the Residential Tenancies Act inside out and intentionally bleeds you dry? (Per Openroom.ca data, landlords with tenants who stop paying rent incur an average loss of $15,863 plus months of duress).

Today, anyone who ever bought a condo in Toronto is seeing its value erode from its 2021 peak value (including those that purchased the contract from a developer in advance of it being built), and everyone involved in any aspect of the shelter industry are facing financial challenges or risk of being laid off – whether they’re employed in architecture, urban planning, construction, finance, real estate development, a retailer selling appliances, furniture or window coverings, or real estate.

Fortunately, just as I witnessed in 1989 when the Toronto real estate bubble burst (because, yes, too many condos), our market will recover. If you’re curious, here’s my post When Dreams Of Domesticity Became Nightmares: A Recollection Of The 1989 Toronto Housing Market Crash. Will it take over a decade to crater, flat line, and then rise from the ashes as it did back then? It’s not a prediction I want to make, but it will be a bumpy ride in the immediate future.

In the meantime, although Sellers of freehold housing across the GTA are having to adjust their expectations due to the ripple effect of a cratering condo market, they’re in a much better position because Old Toronto’s destiny for the next dozen decades is to tear down old houses to build new condos, even if it’s taking 1 single family lot to create 4 as-of-right units. As this happens, owners of single-family dwellings will see products like theirs become scarcer and even more coveted, fueling price escalations we can’t fully fathom.