Inventory is surging, appraisal chaos is continuing, and many owners are bleeding money – but we 'haven’t seen the worst of it yet'
Condo inventory is surging across Toronto as investors flee the space and seek to cast off souring assets, with the unease roiling the market showing little sign of slowing.
Overall new listings across all sectors of the city’s housing market climbed 26% in January over the previous month and spiked by nearly 49% compared with the same time in 2024, with mortgage and real estate professionals reporting a tough time for sellers trying to get rid of the condos they’ve bought.
The problems facing Toronto’s condo sector are well documented. The 2010s marked a golden era for investors who tapped into sky-high immigration and demand for downtown living by purchasing condos and renting them out or selling for big profits, but that market has shifted dramatically amid rapidly cooling sales activity and a post-pandemic jump in interest rates.
The new-construction condo market is bearing the brunt of that darkening outlook, with many buyers who purchased between 2019 and 2021 – when new-con prices were nearing their peak – now left in the lurch as appraisals come in well below the price they agreed to pay years back.
What’s more, the uptick in rates seen since 2022 means mortgage payments, in many cases, are now higher than rent, and investors are bleeding cash as a result.
“Anything after 2019 really is not currently appraising,” Shabnam Gill (pictured, top left), a Toronto-based broker with Dove Mortgages, told Canadian Mortgage Professional. “So appraisals are a big issue right now for people that purchased pre-cons that are currently closing.
“The other issue that we have right now is cashflow: A lot of people purchased preconstruction condos primarily for investment purposes - so not only have they lost all the equity that they were hoping to build up until now, but they’re also paying out of pocket to cover the shortfall in terms of the cashflow – because rent is not covering the payments.”
Appraisal headaches aside, even qualifying for a mortgage is easier said than done for many borrowers who purchased during the rock-bottom-rate era of the pandemic, according to Gill.
“People that entered into these purchases a few years ago were maybe preapproved at 1.5%, 2% interest rates,” she said. “Now they’re having a hard time qualifying when the rates are more like 4.5% to 5%. The qualification criteria and the qualification rates have completely changed.”
No light at the end of the tunnel in Toronto’s condo market
New-con completions in the Greater Toronto and Hamilton Area (GTHA) jumped from 24,114 in 2022 to 29,800 in 2024, according to Urbanation – but sales slid to just 4,590 last year, significantly below the 10-year average and the coolest activity for nearly three decades.
Last year marked the slowest year for new condo sales in the Greater Toronto Hamilton Area since 1996 pic.twitter.com/Rco8pplcm7
— John Pasalis (@JohnPasalis) January 16, 2025
Ominously, the appraisal crisis sweeping the market may have some way to run yet. “Some of the new-con completions right now aren’t appraising at the [original] value – but we haven’t hit the worst of it yet,” Joanna Lang (pictured, top right), managing partner with Outline Financial, told CMP, “because if you look at the new-con and resale sales prices, they were going towards their peak in November 2021 and peaked around 2022 for the condo market. And then rates started to go up in March and it started to change from there.
“But what you need to keep in mind: anything that’s coming up for completion right now on the new-con side, that sold probably four to five years ago. That’s the kind of [standard] gestation period of a high rise. So these people closing in 2024 or 2025 are 2019-20 sales. People who bought at an even higher price, they haven’t yet come up for closing.”
How are owners escaping the condo nightmare?
Plenty of buyers are resorting to placing their condos on the assignment market, selling their contract to a new buyer and transferring their right to take possession of the unit upon completion.
But even that’s no easy fix, according to Gill. “It’s very difficult to try and put your condo on assignment and try to get rid of it that way but a lot of clients are desperately trying to go that route. In some cases, I’m even seeing partial deposits being forfeited,” she said.
“Let’s say for a $550,000 purchase, they’re willing to assign it for $530,000 and let the new buyer get $20,000 off. So they would lose that as part of their deposit. There’s a lot of that going on.”
Lang said builder sentiment already appears to be worsening on Toronto’s condo market, with new supply likely to dry up within the next few years – meaning the space will likely recover before the end of the decade, even if it could be a bumpy ride between now and then.
That possibility is convincing some new-con owners that riding out the current wave even if it means hefty losses in the short term is worth it, according to Gill. “Some people expect that, given construction is kind of halted in Toronto downtown, the values will eventually rebound and then they’ll be able to sell and pay off all these debts,” she said. “Other people are not very optimistic.
“There’s one type of client that’s optimistic that they’ll close, they’ll get themselves overleveraged and they’re OK with that, thinking that they’ll be able to get in a better situation soon. Then there’s the other client who just doesn’t even want to take the risk and they think that walking away from their deposit, losing $100,000 and then not incurring further cash outflow every single month to keep that property is the right thing to do because they don’t want to become overleveraged.”
There’s easy answer on the right course of action – and since new-con buyers entered into a legally binding agreement with the developer to purchase the property, mortgage brokers’ advice to clients usually starts with three words: Ask your lawyer.
“We can’t advise them legally on what they should or shouldn’t do,” Gill said. “That’s up to the lawyers to let them know: Should you walk away? Should you keep it? Obviously, there’s a lot of uncertainty as to whether these values are going to rebound.”
Make sure to get all the latest news to your inbox on Canada’s mortgage and housing markets by signing up for our free daily newsletter here.
