“Make no mistake, the condo market has been dropped to its knees. It’s not a TKO, but let’s give it a standing eight count,” reads a recent report from CIBC’s Deputy Chief Economist Benjamin Tal and Urbanation’s President Shaun Hildebrand. The report delves into the current state of Canada’s housing market and breaks down why there is hope yet for the GTA condo.
Outlooks for the GTA market have been somber for some time now, and this is not something Tal and Hildebrand shy away from. They acknowledge condo sales have stooped to ’90s levels and that “the days of 20,000-plus annualized new condo sales will likely stay in the rearview for the foreseeable future,” but argue that what will emerge from this prolonged downturn will be a leaner and more structurally sound market that favours end users over speculative investors.
One key point they make is that while sales may have hit ’90s levels, we aren’t living in the “deep recession” experienced by buyers and builders during that era. During the peak of the recession in summer 1992, Ontario’s unemployment rate was 11%, compared to today’s 7.8%. And since then, condos have come to make up a massive portion of the market, averaging close to 20,000 new condo sales annually and making up around 60% of all construction starts in the GTA over the last 20 years.
What this points to, Hildebrand and Tal say, is that the condo market has become “simply too important for the housing market to stay down.” According to their findings, purpose-built rental starts would need to triple their current level if they were to replace condos.
So condos are still needed, but what will it take for them to rebound?
The previously growing glut of unsold condo units has begun to decrease from extreme highs seen in late-2024 and earlier this year — a trend Hildebrand and Tal say should continue as projects cancel or convert to rental — but price softening will be key, they say, to seeing buyers and investors return to the market.
This is something we are already seeing. The report points out that not only have prices fallen 19% from the Q1-2022 peak, but interest rates have be reduced by 250 basis points since last June, and in July, the Feds introduced 30-year insured mortgages for first-time homebuyers purchasing new builds. “Affordability for condos is now at its best level since 2021,” they say. “Some buyers are starting to test the waters.”
In fact, sales of condos priced under $500,000 increased 47% year over year in the first half of 2025 — a four-year high. According to the report, this activity was led by private equity groups acquiring blocks of unsold units, but mom-and-pop investors are expected to follow suit as conditions improve.
Historically, Tal and Hildebrand point out, when condos become more affordable than other types of housing, like detached houses or townhouses, more people will choose to buy condos, increasing their market share. So far, this hasn’t happened, as condo sales represented just 27% of transactions in the last year, but Tal and Hildebrand say it’s “only a matter of time” before this demand shifts from pricey low rise homes to increasingly affordable condos.
On the investor front, the presale price premium (the extra amount investors paid for presale condos when the market was hot compared to new resale units) has already fallen 40% to 18%, landing the metric closer to pre-pandemic levels. Still, that premium needs to fall to less than 10% for purchases to pencil in the current market — something the report says will require governments lowering fees to help builders overcome the current cost to build.
In the meantime, condo starts have “dropped off a cliff” and new completions have reached their peak, with deliveries having nowhere else to go but down as we enter 2026, where completions will enter multi-decade lows, according to the report. “That’s not a forecast but a reality, as what doesn’t get launched today won’t get delivered in the future,” say Tal and Hildebrand.
What this means is that the supply-demand imbalance we’re seeing today will eventually be flipped on its head as inventory and prices come down and new supply stagnates. Add onto that the fact that the population will continue to grow — and Tal and Hildebrand predict it will likely grow by more than the “zero growth officially projected” — and you get a situation where rents begin to climb and investing in condos becomes attractive again.
They add, however, that under current conditions, rents would have to increase by an unlikely 55% for a presale unit to be profitable upon completion. What is truly needed, they argue, is for prices to fall another 5% to 7%, for the Bank of Canada to make some more rate cuts, and for buyer confidence to return.
When that happens, it will be more traditional buy-and-hold investors that come to the table, rather than quick-flip speculators who came to dominate and reshape the market during the post-Covid years, having learned “a painful lesson.” Tal and Hildebrand predict this will lead to an overhaul in the types of units being built, as the focus shifts back to end users.
“The precipitous increase in average project size and decline in average unit size will come to end, with a greater focus on design and livability,” they say. “This will require a rethinking of how the industry designs, sells, finances, and builds condos going forward.”