Market Insight for September 19

Condos remain essential, but what will it take for this segment to bounce back?

“Let’s be clear, the condo market has been knocked down hard. It’s not a total knockout, but you could call it a standing eight count,” notes a recent report from CIBC Deputy Chief Economist Benjamin Tal and Urbanation President Shaun Hildebrand. The report examines the current realities of Canada’s housing sector and explains why there’s still reason for optimism in the GTA condo market.

For months, the outlook for condos in the GTA has been gloomy, and Tal and Hildebrand don’t avoid that reality. They recognize that sales have fallen to levels not seen since the 1990s, with “the days of 20,000-plus annualized new condo sales likely staying in the past for some time.” But they also argue that this prolonged slowdown will ultimately create a leaner, healthier market — one that supports end-users more than speculative investors.

Importantly, they stress that while sales have dropped to ‘90s levels, we aren’t facing the same “deep recession” that buyers and builders endured back then. In the summer of 1992, Ontario’s unemployment rate peaked at 11%, compared to today’s 7.8%. Since that time, condos have grown into a dominant force in the GTA, averaging nearly 20,000 new condo sales annually and making up around 60% of all construction starts in the GTA over the past two decades.

The takeaway, according to Tal and Hildebrand, is that condos have become “too central to the housing system to remain down for long.” They calculate that purpose-built rentals would need to triple current levels to replace condos — underscoring their ongoing necessity.

The backlog of unsold condo units is already shrinking from record highs seen in late 2024 and early 2025, a trend expected to continue as projects are cancelled or shifted to rental. Still, they argue, further price adjustments will be key to attracting both buyers and investors.

And that adjustment is already underway. Condo prices are down 19% from their Q1-2022 peak, while interest rates have fallen by 250 basis points since last June. In addition, July saw the federal government introduce 30-year insured mortgages for first-time buyers of new builds. “Condo affordability is now the best it’s been since 2021,” the report notes. “Some buyers are beginning to wade back in.”

Evidence of this is clear: sales of units under $500,000 surged 47% year-over-year in the first half of 2025, hitting a four-year high. Much of this activity has been driven by private equity firms buying blocks of unsold units, but mom-and-pop investors are expected to follow suit as conditions improve.

History shows that when condos become more affordable than low-rise housing options like detached homes or townhouses, buyers typically gravitate toward them. That shift hasn’t happened yet — condo sales accounted for only 27% of transactions in the last year — but Tal and Hildebrand insist it’s “only a matter of time” before demand moves in that direction.

On the investor side, the presale price premium — the extra amount paid for new presales versus resale condos — has fallen 40% to 18%, moving closer to pre-pandemic norms. But for deals to make sense in today’s environment, that premium likely needs to drop below 10%. The report suggests this will require governments to reduce fees and charges to help builders manage construction costs.

Meanwhile, condo starts have collapsed, and completions have peaked, with deliveries now expected to decline sharply. By 2026, completions will hit multi-decade lows, according to the report. “This isn’t a projection, it’s a fact,” Tal and Hildebrand explain. “What isn’t launched now won’t be completed later.”

This imbalance will eventually reverse the current dynamic. As inventory clears, prices reset, and new supply dwindles, demand will once again outpace availability. With population growth expected to exceed the “zero growth officially projected,” rents will rise, making condo investment appealing again.

Still, under today’s math, rents would need to climb an unrealistic 55% for a presale to be profitable at completion. For a real recovery, Tal and Hildebrand say, condo prices need to fall another 5% to 7%, interest rates must ease further, and most importantly, buyer confidence has to return.

When that happens, the market will lean on long-term investors rather than the quick-flip speculators who dominated after Covid. This shift, they predict, will reshape the types of condos being built, bringing the focus back to end-users.

“The ballooning of project sizes and shrinking of unit sizes will come to an end,” they write. “This will require a rethinking of how the industry designs, sells, finances, and builds condos going forward.”