GTA’s condo slump squeezed developers even as banks’ mortgage risks stayed contained
Canada’s condo market has already been cooling, but new analysis from Morningstar DBRS suggests the Greater Toronto Area (GTA) is now working through a significant correction with painful implications for developers and construction but more limited fallout, so far, for major lenders.
Canada’s condominium apartment market, particularly in Toronto and to a lesser extent Vancouver, is “in the midst of a significant downturn,” Morningstar DBRS said.
“The condo market, most notably in the GTA, is experiencing steep declines in prices, new sales, resales, and construction starts, while completions remain near historical highs.”
The research points to a sharp turn from the easy money era. “Prior to 2022, condo developers operated in a highly favourable market with strong demand fueled by immigration, low borrowing costs, and rising condo prices and rental rates,” the report said.
“However, with higher interest rates, a shift to a more restrictive immigration policy, and lower prices and rents, demand for new construction has materially slowed as investors have largely moved to the sidelines.”
Morningstar DBRS highlighted record completions in Toronto and Vancouver, even as new sales collapse. Buyers now have “significant choice in the market,” with resale units available immediately and “a discount compared with new condo launches.”
Developers, by contrast, are stuck with elevated input costs and labour shortages even as presale volumes fall short of the roughly 70% typically required for construction financing.
Pressure on smaller developers – but not a mortgage crisis
In that environment, cancellations and restructurings mount. “In our view, smaller developers are at the greatest risk, as they are often less diversified, more reliant on external capital, and have less liquidity on their balance sheets than larger firms,” Morningstar DBRS said.
It warned that “lenders with exposures to smaller condo developers could face potential losses in their condo books,” although Big Six banks’ loans to Canadian condo developers remain “well below 1% of total loans,” focused on larger, higher quality sponsors.
For retail borrowers, the picture looks less acute. “We do not believe condos are playing an outsized role in the increasing delinquencies within Canadian banks’ retail mortgage portfolios,” the research said, noting that resale condo prices in the GTA and Greater Vancouver have fallen somewhat less from 2022 peaks than the broader housing composite, and that prime lenders still hold “solid loan-to-value ratios.”
Drew Donaldson, principal broker at Donaldson Capital, notes that sliding prices, weaker rental demand, and immigration cuts have left investors sidelined, with recovery unlikely before 2027.https://t.co/s83VlRiF0m#realestate #mortgage #housingmarket #Toronto
— Canadian Mortgage Professional Magazine (@CMPmagazine) February 11, 2026
Broader supply crunch looms as construction stalls
The condo pullback forms part of a wider construction slowdown. Canada Mortgage and Housing Corporation (CMHC) flagged a steep drop in condominium starts, especially in Toronto and Vancouver, even as purpose-built rental activity picked up.
GTHA condo sales hit a 34-year low as investors confronted negative cash flow and financing hurdles, with analysts warning that today’s construction freeze risks a supply crunch and renewed affordability pressures later in the decade.
Morningstar DBRS sees a similar arc. With condo starts sliding to their weakest level since 2007, it expects completions to “materially reduce” in the coming years.
Eventually, “we expect that all condo inventory will eventually be absorbed and demand for new construction will return, but the timing of this remains highly uncertain,” the report said.
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