Toronto Condo Market Tumbles: Why Buyers Could Score Big in 2024

As Canada’s condo market faces turbulence, condo buyers could be in for a unique opportunity. In cities like Toronto, where listings are soaring and demand is cooling, prices are tumbling, creating a possible buyer’s market. For potential homebuyers who’ve felt locked out by high prices, this downturn might offer a rare opening to buy in at reduced costs, while investors could find themselves with less competition as other buyers pause to wait and see.

Condo Listings Surge, Demand Drops

Metro Toronto is grappling with an unprecedented surge in condo listings, up 38% year-over-year, alongside record-breaking condo completions projected to continue through 2026. At the same time, new condo sales have slowed significantly, hitting a low not seen since the mid-90s, while unsold inventory sits 56% above the 10-year average. Coupled with a rise in units available for rent and lengthier days on the market, Toronto’s condo supply is clearly outpacing demand.

Adding to this cooling effect is the rental market, where those unable to sell have resorted to leasing. Rental listings shot up by 46.6% in the third quarter alone, and bachelor units (small studio apartments) have seen a steep 77.6% increase. As a result, rental rates in some areas are starting to dip, making homeownership more appealing to renters.

A Shift in Fundamentals

Market fundamentals are putting downward pressure on prices. High mortgage rates have left many condo investors with “deeply cash flow negative” properties — a scenario that could push more owners to sell. In addition, government policy changes aimed at curbing Canada’s high immigration rates will likely reduce demand in metro areas, especially Toronto, Vancouver, and Montreal, where much of the condo demand has historically come from new immigrants and temporary residents.

Despite these economic headwinds, some prospective buyers, particularly those interested in “dog crate” condos (small bachelor units), remain cautious. Mortgage lenders often shy away from financing tiny units unless they are default-insured, and many impose minimum square footage requirements. However, for buyers seeking larger units with more room for growth, this market downturn may offer an entry point that was previously out of reach.

Conditions for a Mortgage in Today’s Condo Market

Those ready to capitalize on the lower prices should understand the requirements lenders will expect in the current climate. To secure favorable terms on a $600,000 Toronto rental condo with a 20% down payment, buyers would typically need a credit score of at least 680, a debt-to-income ratio under 45%, and a household income of around $145,000. If these metrics aren’t achievable, buyers might face higher rates and fees.

Experienced investors looking to expand rental portfolios also face unique hurdles, with lenders restricting the number of properties owned and adjusting rental income allowances on mortgage applications. For such buyers, structuring finances strategically will be key to securing optimal terms as they navigate the market downturn.

Playing the Waiting Game

While some investors might dive into condo bargains immediately, others advise patience. Housing analyst Ben Rabidoux suggests “waiting to see what plays out” over the next year before making moves in markets like Toronto, where risk is high compared to other immigrant-heavy markets like Vancouver or Montreal. Toronto’s condo market may present some of the most substantial opportunities, but it also comes with heightened risk.

In the coming years, if immigration ramps up as the federal government projects, demand will likely recover, and so will prices. This could lead to underbuilding in the future, pushing developers to hold off on new projects until the market rebounds. Vulture investors who wait might find themselves in a more favorable position to capitalize on an inventory squeeze as the market stabilizes.

The Bottom Line for Buyers

In the short term, condo buyers have an unusual opportunity to purchase at a discount in a high-demand city. Those looking to step into homeownership or expand rental portfolios should carefully assess the risks and weigh timing and market conditions. With a little patience and smart strategizing, today’s market downturn could turn into tomorrow’s gains.