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Thursday, September 25, 2025

Toronto's condo market is tanking – but it's unlikely to see a 1990s-style crash

Toronto’s pre-construction condo market has entered a deep freeze, with sales plunging to lows not seen since the global financial crisis.

Developers are facing “vanishing demand and steep costs,” according to RBC’s latest analysis, while the Canada Mortgage and Housing Corporation (CMHC) draws parallels to the crash of the early 1990s, but points to a faster, less painful recovery this time around.

Investor appetite, which once fuelled the city’s condo boom, has largely evaporated.

“Cooling rental demand has diminished cash flow prospects, while more realistic capital appreciation expectations have stripped away much of the gains that once made pre-construction purchases attractive,” RBC said.

The bank’s economists noted that abundant inventory of existing condos—often priced below what developers can offer—has “drastically altered the competitive landscape.”

CMHC’s new report found that Toronto’s condo prices are declining at rates similar to the early ‘90s, but expects prices to rebound within a few quarters, rather than the seven-year slump seen three decades ago.

“A more diverse and stable economy, stricter lending rules, and an underlying shortage of homes in the Greater Toronto Area will all help soften the effects of the market pullback,” CMHC said.

Inventory glut reshapes buyer behaviour

The glut of 6,966 unsold units, now at a nine-year high, has created a self-reinforcing cycle.

“Abundant choice reduces urgency, empowers buyers to negotiate aggressively, and makes developers increasingly reluctant to launch new projects in a saturated market,” RBC said.

New condo sales have plummeted to 449 in the second quarter of 2025, and developers are struggling to clear inventory before launching new phases.

High development and construction costs have pushed new project pricing beyond what many buyers can afford, especially when existing alternatives offer immediate occupancy and established neighbourhood amenities.

“The fear of missing out driving rushed purchasing decisions is now replaced by patient comparison shopping amid lots of choice and negotiating power,” RBC said.

Why this downturn is different

CMHC emphasized that today’s market is shaped by a structural shortage of housing, not the speculative overbuilding that defined the 1990s.

“We do not assess Toronto’s market as being overbuilt as it was during the 1990s. On the contrary, there is currently a structural shortage of housing, which is expected to help clear any inventory build-up as the market recovers,” the agency said.

Stricter lending rules have also changed the game. Developers must now pre-sell at least 70% of units before construction begins—up from 50% in the 1980s.

“Today’s homebuyers also face tighter lending criteria. Mortgage underwriting has evolved to ensure borrowers have greater financial capacity to service debt and the ability to absorb interest rate fluctuations,” CMHC said.

Long road to recovery, but not a crash

RBC warned that the path back to higher pre-construction sales “is likely longer and more complex.” The bank’s analysis suggests inventory may need to fall by 25% or more for new project sales to regain momentum.

“Broader economic recovery and returning market confidence will eventually revive condo demand, but the path back… will likely extend well beyond what historical precedents might suggest,” RBC said.

CMHC, meanwhile, forecasted a more balanced market ahead, with declining condo starts expected to result in fewer units coming to market after 2026.

“The Toronto condominium market is no stranger to ups and downs. Periods of rapid price increases have been followed by declines, especially when interest rates fluctuate,” the report read.

While Toronto’s pre-construction condo sector faces a prolonged adjustment, experts agree that today’s market fundamentals—tight supply, stronger lending standards, and a more resilient economy—should prevent a repeat of the 1990s crash.

The thaw may be slow, but the city’s housing landscape is unlikely to see the same long-term pain.

CMP

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