What history tells us about Canada’s condo market downturn

The Canadian condo market—centred primarily in the Greater Toronto Area (GTA) and Vancouver—currently finds itself in a possible crisis. After years of consistent growth and investment peaking in 2022, demand has fallen off a cliff even as new units are hitting the market. According to TD, the number of condo resales in the GTA were down 11% year-on-year (YOY) in Q1 2026 and are 40% below the 10-year average. That’s translated into a 10% YOY decline in average sale prices. In Vancouver, condo sales are down 16% YOY, though price declines haven’t been as extreme as those seen in the GTA. 

The causes of the current downturn are varied. First, the inflation pressures unleashed during the pandemic resulted in increased interest rates and an overall tightening of financing. This had a negative effect on affordability for buyers. Next, the construction boom in Vancouver and the GTA led to a significant oversupply, while demand waned. A significant portion of these developments were geared towards the investment community—very small units that were intended to be rentals. Finally, changes to Canadian immigration policy, significantly reducing entrants to Canada, exacerbated sinking demand as the additional supply arrived to market. Those convergent shifts make the current downturn unlike those in the past. 

Since the turn of the century, there have been four significant downturns, not taking into account the current situation: fallout from the Asian financial crisis (1997 – 2000), the Global Financial Crisis (2008 – 2009), the introduction of the mortgage stress test (2017), and the COVID-19 pandemic (2020 - onwards). While each of those market shocks had different root causes and progressed according to the specifics of the market, they followed a similar historical pattern. 

First, demand was displaced but not destroyed. An initial shock led to broad uncertainty about how the market would adjust and financiers, investors, and buyers sat on the sidelines until the situation became clearer. Notably, they held their positions, which avoided a broader decline. Next, developers were able to slow the production of new supply quickly as they adjusted to change. This allowed existing stock to be absorbed while the situation was in flux. Third, demand returned once credit normalized. The end result was that recovery arrived within a few years.

Similar to previous downturns, weakening demand has caused investors and lenders to pull back from the market. The key difference today is the sharp disconnect between costs and revenues: carrying costs have increased by 24% to 29%, while rents have risen by only 12% to 15%. This imbalance is driving negative cash flow and eroding equity—an unsustainable situation for all but the most well-capitalized investors.

At the same time that demand economics are impaired, new supply has flooded the market. There were a record number of completions in 2024-2025, all of which are coming available as demand is weak. This is reflected in the gap between pre-construction prices ($1,187/sq. ft.) and resale prices ($903/sq. ft.). Potential buyers who need to have an appraisal to secure financing may find themselves unable to close the deal at pre-sale prices, creating additional downward pressure on demand. 

This is all reflected in a drastic decline in sales from their peak in 2022. According to the CMHC, Q1 2025 condo sales were down 75% in Toronto and 37% in the GTA. As inventories grow and prices continue to fall, developers have attempted to convert projects to rentals or canceling projects altogether. While that will help with the glut of supply in the long run, TD estimates that it will take until at least 2028 before we see a sustained upward trend. 

While there are some surface-level similarities between the current downturn and the 1990s condo crash, the underlying market conditions are fundamentally different. 

The late-1980s condo boom was fuelled by rapid price appreciation, high inflation, speculative buying and relatively loose development standards. Projects often proceeded with lower pre-sale thresholds than are required today, allowing construction to move ahead with less demonstrated market demand. When interest rates rose sharply and Canada entered a recession, the market was left vulnerable to a prolonged correction. According to the CMHC, the early 1990s condo market was characterized by overbuilding and speculative activity. 

Today's market is operating within a framework largely shaped by lessons learned from previous real estate downturns. Most notably, Canada faces a persistent housing shortage across its major urban centres, a dynamic that didn’t exist during the early 1990s. While current affordability challenges have sidelined many buyers, underlying housing demand remains significantly stronger than it was during the previous crash. Condo purchasers must also qualify under the mortgage stress test, resulting in stronger borrower profiles and lower levels of mortgage arrears than those seen during the 1990s downturn. 

The development model has also evolved. Developers typically need to secure approximately 70% of units in pre-sales before obtaining construction financing, compared with roughly 50% during the late-1980s condo boom. Both CMHC and the Bank of Canada identify these stricter pre-sale requirements as a key safeguard against speculative excess. By requiring stronger evidence of market demand before construction begins, the current system reduces risk for developers, lenders and the broader financial system. 

Taken together, these differences suggest that the current downturn is less indicative of a systemic housing collapse and more representative of a market correction following an exceptionally strong development cycle. Pricing and construction activity will likely continue to adjust as excess inventory is absorbed, but the structural foundations supporting long-term housing demand remain considerably stronger than they were three decades ago

Builders and developers are confronting pressure on their current pre-construction model. Until conditions return to those similar to pre-2022, they’ll need to shift their approach. The most likely changes will be an increased focus on purpose-built rental units, phased developments to manage risk, and lower launch pricing. 

With uncertain demand for new condo units, lenders will be facing higher risks in funding new projects. As such, their lending criteria will adjust to mitigate those risks. They’ll pay greater attention to the quality and viability of pre-sale buyers and take a closer look at a projects’ sponsors to ensure they have the necessary financial muscle to manage volatility in the market. 

For every downturn, there’s a recovery. This time the recovery is being driven by the need to absorb over-supply. That’s a different problem than most industry players have experienced in the past, but it’s not a cause for panic--the Canadian condo market isn’t breaking, it’s repricing risk. That process is never easy or simple, but for those with a clear understanding of the current situation and the ability to adjust on the fly it is manageable.