Toronto’s new condo sector is in a “deep freeze” that could reshape the housing landscape of Canada’s biggest city for years to come, warns an economist.

Pre-construction sales in the Greater Toronto Area have plunged to levels not seen since the global financial crisis, a dramatic downturn that is more than just a cyclical adjustment, wrote Robert Hogue, assistant chief economist at the Royal Bank of Canada,

in a report this week.  “Investor appetite that traditionally fuelled Toronto’s pre-construction market has largely evaporated, driven by a sobering reassessment of investment fundamentals,” he said.

“The stark reality facing developers today is vanishing demand and steep costs.”

Hogue says the inventory of condominiums in the city would need to fall by 25 per cent or more for new project sales to pick up again and that could take some time — because currently the Toronto market is awash with condos.

Unsold units in projects now under construction are at a nine-year high, and the condo inventory continues to rise as owners are pressured to list existing properties as their

mortgage rates rise upon renewal. Investors are bailing as rental demand cools and expectations of making big bucks on property appreciation become a thing of the past.

Meanwhile, plummeting condo sales and soaring inventory have created a buyer’s market not seen in years. During the pandemic buyers rushed in to purchases for fear of missing out. Today they are spoilt for choice and have room to negotiate — aggressively.

And what they are choosing is existing condos which are immediately available and often cheaper than new projects.

“Importantly, abundant inventory of existing condos — often available at prices below what developers can offer — has drastically altered the competitive landscape,” said Hogue.

Small wonder then that developers are reluctant to build. Yesterday, the Building Industry and Land Development Association (BILD)

raised the alarm over stagnating new home sales in the Greater Toronto Area and called for government intervention.

Only 118 new condos were sold in the GTA in August, down almost 60 per cent from last year and 90 per cent below the 10-year average, said the group, citing data from Altus Group.

BILD wants government to suspend the GST on all new homes under $1 million, among other measures, but Hogue said while this would give a “marginal” boost to demand, it would not “unlock” the new condo market.

“The fundamental challenge lies in addressing the substantial disconnect between what buyers are willing to pay and what developers can viably offer, given high development and construction costs,” he said.

RBC expects condo demand to pick up as the economy gains strength, but recovery in pre-construction sales will likely be longer and more complicated. It expects the decline in condo inventories to start gradually in early 2026 and pick up speed later in the year as sales increase.

“Such conditions would set the stage for renewed pre-construction demand in the second half of 2026 with more robust activity in 2027,” said Hogue.

But there are risks to that forecast, including a softer-than-expected economy in the months ahead and the chance condo listings could climb even higher.

Developers also face the challenge of keeping operations ticking along through the extended downturn. If they lose skilled workers and expertise because of prolonged inactivity it could create bottlenecks when demand returns, said Hogue.

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The trade war has curbed industrial construction significantly in Canada, data reveals. Seasonally-adjusted spending has fallen every month since U.S. President

Donald Trump’s tariff disruption started in February, said Sal Guatieri, senior economist at BMO Capital Markets.

Spending on factories in Canada has dropped more than 10 per cent year over year, with spending by smaller industrial players down more than 20 per cent. Hit hard by

U.S. tariffs on steel and autos , Ontario’s industrial construction spending is down 10.4 per cent and 21.6 per cent for smaller players.

“Don’t expect much revival until the USMCA is signed, sealed, and delivered,” said Guatieri.

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McLister on mortgages

Find out more Want to learn more about mortgages? Mortgage strategist Robert McLister’s

Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Plus check his

Financial Post on YouTube

mortgage rate page for Canada’s lowest national mortgage rates, updated daily. Visit the Financial Post’s YouTube channel for interviews with Canada’s leading experts in business, economics, housing, the energy sector and more.

Today’s Posthaste was written by Pamela Heaven with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

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