Condo Oversupply Surges as Borrowing Costs and Completions Climb

Real estate observers across the Greater Toronto Area (GTA) say a mix of elevated interest rates and a recent surge in new condominium supply has created a clear oversupply in the market—one that will take time to work through as demand and supply rebalance.

A TD Economics report by Rishi Sondhi highlighted that resale activity has not been sufficient to absorb the volume of new units coming online. In fact, condo resales in the GTA were about 25% lower in July compared with pre-pandemic levels, underscoring the uneven market conditions.

Sondhi attributes the trend to several overlapping forces: a wave of newly completed condo projects arriving on the market, higher borrowing costs that have made it harder for some buyers to qualify for or close mortgages, and investor sell-offs as falling rents and negative cash flow have reduced the appeal of holding rental units.

“The relatively elevated interest rate backdrop means that the gap between the rate of return from a condo in the GTA … and from a risk-free government bond has narrowed,” Sondhi wrote. That compression of returns, he added, has likely reduced the incentive to hold a condo as an investment, although a recent drop in yields may be beginning to widen that spread again.

Condo completions in the GTA

Sondhi’s analysis points to a significant rise in completions: roughly 19,000 condos were finished in the GTA between January and July of this year, compared with about 12,000 in the same period of 2023 and 10,000 a year earlier. That pace suggests the region could see record-high condo completions by year-end.

Brendon Cowans, a sales representative with Toronto brokerages Property.ca, emphasized how the timing compounded the problem: “You can just imagine all of this supply coming in a high interest rate environment. It’s not a lovely combination.”

On the listings front, active condo inventory has surged. Data from real estate firm Zoocasa show active condo listings across the GTA rose 63.9% in July year-over-year, increasing from 5,416 to 8,879. The City of Toronto experienced a similar jump, with active condo listings up 61.5% year-over-year during the same month.

What’s happening in other major cities?

The GTA is leading the country in active-listing growth, but the pattern of rising condo inventory is evident in several other major Canadian markets. Zoocasa reported year-over-year active condo listings increased by more than 40% in London, Hamilton‑Burlington, Mississauga and Ottawa, as well as in Vancouver. Montreal and Calgary each posted roughly 23% increases.

Zoocasa and local brokers note this rise in listings is tied in part to higher carrying costs. As interest rates have risen over the past three years, the ongoing expense of holding investment properties has climbed—particularly for owners who purchased within the last five years and had variable-rate mortgages.

“Some of the carrying costs for these properties, especially people who bought within the last five years and were on variable rates, they saw the carrying costs shoot through the roof,” Cowans said, underscoring why some investors have chosen to list their units rather than continue to absorb losses.

The impact on condo prices in the GTA

For prospective buyers, the swelling supply has translated into more favourable pricing conditions. According to Zoocasa, condo prices across the GTA fell about 2% year-over-year in July. By comparison, townhouses fell 1% and detached properties declined roughly 0.1% over the same period.

Sondhi noted that condo prices in the region have dropped roughly 5% since the third quarter of last year and expects a gradual recovery as the market slowly rebalances. He forecasts that condo resale prices could drift down by mid-to-high single digits into the early part of next year, though that projection comes with trade-offs on both sides of the outlook.

“There are risks to the near-term condo price outlook on both sides,” Sondhi wrote. On the downside, an ongoing wave of completions will continue to add to supply. On the upside, sales could respond more sharply if interest rates fall faster than expected, or investors might withdraw units from the market, tightening conditions more quickly than anticipated.

What role will interest rates play?

Interest-rate policy is central to how the balance will shift. Earlier this month, the Bank of Canada trimmed its key policy rate by 25 basis points to 4.25%—the third consecutive cut—but signalled it could adjust the pace of future reductions as conditions warrant. That cautious tone leaves some uncertainty about how quickly borrowing costs will ease.

Sondhi expects interest rates to remain “relatively elevated” into 2025, which he says will continue to constrain activity because affordability challenges persist for many buyers. Still, not everyone agrees on the timing of a recovery.

Debbie Cosic, founder and CEO of In2ition Realty, offered a more optimistic view: she believes the oversupply is temporary and expects next year to be strong if interest rates continue to trend downward. In her view, current conditions present buying opportunities, with more incentives available and lower competition than in previous years.

“We’re expecting next year to be a very strong year because we believe interest rates will continue downward,” Cosic said. “For buyers, now is the time to lock in a purchase and take advantage of incentives being offered. We believe the oversupply is coming from the public just standing back to see when the market hits rock bottom. We believe it’s hit rock bottom.”

What the future holds for the GTA condo market

Cowans pointed to the number and timing of Bank of Canada rate cuts over the next 12 to 18 months as a decisive factor for market recovery. He also noted that new completions are expected to slow in the coming years, which should help sales absorb inventory over time.

“I do see things picking back up in the future. I don’t expect it to be super fast,” Cowans said, adding that continued rate reductions could steadily lift demand. He suggested that by 2027 market conditions could feel very different as borrowing costs ease and buyers return.

Overall, the GTA condo market faces a transitional period: elevated inventory and carrying costs have softened prices and sales activity in the near term, but shifts in interest rates and a slowdown in new completions could gradually restore balance. For buyers and investors, monitoring mortgage rates, rent trends and new supply pipelines will remain essential when making decisions in the months ahead.

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