Is Toronto's real estate market crashing? Home prices will keep dropping, experts say — but it won't feel like any crash we've had before

Hamilton Spectator

3 days ago

For the first time in more than 30 years Canadians are facing a shocking truth: home prices don't go up forever.
Toronto's real estate market is facing its sharpest decline since the 1990s, something the boomer generation might remember well, but subsequent generations not so much.
The real estate market has been a key driver for Canadians to attain wealth — long seen as a smart investment tool.
But that notion is crashing.
Since the February 2022 peak, the average sales price in the GTA has dropped by almost 18 per cent. At least one expert says the region could see a peak-to-trough decline of 23 per cent, while other economists say it's unclear how low prices will go.
While the current climate is reminiscent of the late 1980s and early 1990s recession — when home prices plunged by around 38 per cent in the GTA — economists say this slump won't feel like a housing crash in the traditional sense.
That's because home prices are still well above 2019 levels, they say, so the current decline is more like a post-pandemic correction, following the unsustainable rise in home prices from 2020 to 2022.
Economists say prices in Toronto will continue to drop into next year, but the decline will happen slowly and steadily as immigration declines and interest rates are unlikely to drop much further.
'A 20-per-cent decline after that type of run-up isn't something that we can call a crash,' said Philip Cross, senior fellow at the Macdonald-Laurier Institute. 'If the market stopped declining now, you'd conclude prices are still very high and affordability hasn't been addressed.'
The biggest change in the real estate market is mindset — consumers are finally understanding that real estate isn't the golden ticket to a quick buck, or the only way to ensure a comfortable retirement nest egg.
'People's expectations are being reset,' said Victor Couture, associate professor of economic analysis and policy, and the Camrost Felcorp Chair in Real Estate at the Rotman School of Management.
'What is happening is we've had this narrative that sustained rapid price growth can only go up, it's this great investment. But now we're seeing a sustained drop in prices after a large event.'
'Overall the market is in stasis,' said Tony Stillo, director of Canada Economics at Oxford Economics.
Sales in Toronto's resale market have been below the 10-year average for the last three years while new listings have surged, meaning there's more supply than demand. Sellers have to adjust their prices to attract buyers, and buyers are able to negotiate better terms in the sale.
'Sales are really low, particularly in Toronto,' Stillo said, adding that affordability, the U.S. trade war and job security are making buyers wary of jumping into a massive purchase at this time.
'We're not in for a crash, but Toronto prices will continue to decline,' adding that home prices will drop 10 per cent by the fourth quarter of 2025 from the fourth quarter in 2024. Stillo noted that the total peak-to-trough price decline is forecast to be around 23 per cent.
There isn't a technical definition of a housing crash. Some experts have said it's when
prices drop by 30 per cent or more
.
Some economists said it's difficult to forecast home prices due to the current number of variables, but noted there isn't rapid population growth, low interest rates or strong economic growth to place upward pressure on prices.
Because of this, Couture said it's likely home prices will continue to decline next year, but he couldn't say by how much.
'Are we going to see an improvement to these three factors next year? I doubt it,' added Cross.
So far the country has bucked a recession despite Trump's tariffs and trade uncertainty, he said, but 'while the Canadian economy has performed surprisingly well, risk remains.'
But economists agreed that it's highly unlikely overall prices will fall by more than 30 per cent in the GTA from current levels to completely reverse price gains that occurred during the pandemic.
The average GTA price in June 2025 was $1.1 million, a 32-per-cent increase over June 2019, when the average was $833,000. During this period,
just three neighbourhoods in Toronto saw average prices drop to 2019 levels
, due in large part to more condos selling in those areas, dragging the average price down.
Tom Storey, sales representative with Royal LePage Signature Realty, noted that small studio or one-bedroom condos in Toronto are selling for 2019-level pricing but the two- and three-bedroom condo units are still garnering substantial interest from first-time buyers because there's limited stock of this housing type.
'Detached homes are still in a very balanced market, semi-detached homes in some pockets are in a sellers' market if priced right, and condos are buyers' market territory,' he said.
Because there is excessive condo supply, with record-levels of new supply entering the market this year, it will take years before market conditions balance, experts say. Nearly 60 per cent of the active listings in Toronto in June were for condos, according to the Toronto Regional Real Estate Board (TRREB).
Average prices in these ritzy areas are down, but those expecting a deal on a Forest Hill mansion may be disappointed.
Average prices in these ritzy areas are down, but those expecting a deal on a Forest Hill mansion may be disappointed.
While homeowners are seeing the value of their properties drop, prospective buyers are still being priced out of the market.
'Prices are still well above pre-pandemic, and even though incomes have continued to rise they haven't kept pace,' said Kari Norman, economist at Desjardins.
'Prices have come down but that doesn't mean we're back to an affordable level.'
Over the past quarter century, the average selling price of a home in Canada has ballooned by more than four times, while the average household disposable income has only slightly more than doubled, Norman wrote in an economic report published in May.
Housing is considered affordable when households spend no more than 30 per cent of their disposable income on housing costs. In Toronto, households spend at least two-thirds of their income on housing.
Cross said house prices and incomes need to reach 'a sustainable equilibrium,' but
that in order for home prices to come down in a 'meaningful way' the ratio of home prices to incomes would need to reach an affordable level. To get there the economy would experience job loss and a slowing labour market, as incomes wouldn't be able to rise quickly enough.
Already signs of strain are showing.
Ontario's
90-plus day mortgage delinquency rate rose 71.5 per cent
since the first quarter of 2024, to 0.24 per cent from 0.14 per cent. Power of sales in Ontario in 2024 also trended up, surpassing 2018 levels, according to Teranet, a real estate registry services company.
But to get a significant drop in prices to reach levels of affordability, there would need to be much more pain the market, Cross said.
'At some point house price values have to be rooted in the reality of what is affordable,' Cross said. 'These overvalued house prices can't be supported forever — people's incomes just can't support it.'
They key takeaway in this real estate moment is 'resetting of people's expectations,' said Couture.
'The path to wealth shouldn't be to buy property,' Couture said, 'but that's the mindset that's been fed to people for so long.'
The Star compiled projects that have been cancelled, converted or put into receivership. Check our interactive map to see your neighbourhood.
The Star compiled projects that have been cancelled, converted or put into receivership. Check our interactive map to see your neighbourhood.
Already, the
condo market
, which is
largely driven by investor demand
, has been put on hold because investors are no longer buying units — the rent isn't enough to cover mortgage costs. And
house flipping has taken a back seat
because prices aren't drastically growing, so the profit when selling isn't there.
'Canadians are learning what Americans learned after the 2008 financial crisis,' Couture said. 'Houses are places for people to live.'
If housing is being used as an investment tool, 'not every investment makes you money,' Stillo said.
If the intense speculation of investor activity doesn't come back, there would be less volatility in the market and the supply would be dictated by what end-users want.
While Cross said the speculation frenzy won't return any time soon, he doesn't think there's been a big enough drop in prices to teach 'the lesson that needs to be learned.'
'The stock market crash in the 1930s or 2008 financial crisis teaches a generation to be more prudent with money,' he said. 'That lesson would not be learned if we froze the market today.'