The Toronto Condo Bubble Has Burst—Here’s How We Got Here
Toronto real estate prices have been outpacing incomes since the mid-2000s. But the situation escalated dramatically after COVID-19, when the federal government increased the money supply (M2) by 25% in a single year. That liquidity flooded into real estate, particularly new condo projects.
Pre-construction developers began marketing increasingly smaller and more expensive units, with many priced at $1,400–$1,600 per square foot. Buyers, expecting fast gains, overlooked poor cash flow fundamentals, betting on appreciation alone. Unfortunately, the math stopped working a long time ago. With rising interest rates and more units hitting the market, many buyers are underwater before they even close.
A Legal Crisis: Walking Away From Pre-Construction Deals
Buyers who purchased pre-construction condos in 2020–2022 are now facing closing dates with units worth hundreds of thousands less than their agreed purchase price. A condo purchased for $1,400/sq.ft may now appraise closer to $950/sq.ft—creating a huge shortfall between mortgage financing and the purchase agreement.
Many buyers are defaulting.
While exact stats are hard to come by, Mark estimates 25% of pre-construction deals are now falling apart, based on conversations with developers, brokers, and lawyers involved in contract clawbacks and commission reversals.
His office now fields multiple calls daily from clients asking one desperate question: Should I close or walk away?
The Real Costs of Defaulting on a Pre-Construction Condo
Contrary to popular belief, breaching a contract isn’t illegal—it’s a civil issue. But it carries major risks.
Mark outlined what happens when a buyer walks away:
- Builders may sue for the difference between the original price and the resale price.
- Lawsuits can also include commissions, holding costs, legal fees, and interest.
- Buyers who co-signed with family members (often unknowingly) expose them to litigation as well.
Many buyers are shocked to learn that developers will come after them for much more than their deposit. Ironically, defaulting is sometimes the more financially sound option than closing on an overpriced asset and taking on massive negative equity.
Mark helps clients weigh both sides, factoring in real-time market values, closing costs, legal exposure, and litigation risk.
Compassion Is Missing From the Conversation
One of the most potent themes from our discussion was compassion—and the severe lack of it.
Mark pushed back on the growing narrative that failed pre-construction buyers are “greedy speculators.” In reality, most are middle-class families or young professionals simply trying to get ahead in a system that increasingly feels rigged against them.
We’ve heard from many buyers who didn’t purchase through us and are now distressed. They signed contracts without understanding the risks. They were led to believe that pre-construction was a guaranteed wealth-building strategy.
That’s why we’ve always educated our clients that pre-construction is a long-term investment—never a quick flip. And it’s why Mark’s message matters.
These aren’t villains. These are your neighbours, your coworkers, your fellow Torontonians.
What Does This Mean for the Toronto Real Estate Market?
The implications go far beyond individual buyers.
Here’s what Mark sees coming next:
- Defaults will continue: Projects sold in 2020–2022 are still closing through to 2027.
- Developers will feel the squeeze. Many are already experiencing cash flow issues, and some are quietly being bought out or restructured.
- Bank exposure will grow: Blanket appraisals (which help banks shift risk from builders to buyers) won’t last forever. CMHC isn’t covering these losses.
- Distressed sales will hit resale markets: As foreclosures and power-of-sales increase, downward pressure will hit even well-located resale condos and homes.
Is There a Silver Lining?
Mark believes the correction, while painful, is a necessary reset.
“If you’re a young Canadian who hasn’t bought real estate yet, this downturn could be your opportunity,” he says. “We’ve spent the last two decades inflating values at the expense of the next generation. That’s no longer sustainable.”
We may be entering a multi-year recession. But if values drop to more affordable levels, we could restore some balance to the market, especially for end-users.
Final Thoughts:
If you’re feeling overwhelmed, uncertain, or need a second opinion, know this: you are not alone.
Whether you’re considering buying, selling, walking away, or just staying put, Fox Marin is here to support you with integrity, data, and clarity.
If you’re facing a legal challenge regarding your condo purchase, we highly recommend speaking to Mark Morris at LegalClosing.ca.
Right now, we are entering the eye of the storm, but this will not last forever—this too shall pass.
Contact Fox Marin, Toronto’s downtown luxury real estate brokerage, today to learn more about the advantages of hiring a quality team!
Contact Us (We’re Nice).
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This article was written by Ralph Fox, Broker of Record and Managing Partner here at Fox Marin Associates. Ralph is a Torontonian native who recognized from an early age that the most successful people in life apply long-term thinking to their investments, relationships, and life goals. It’s this philosophy, along with his lifelong entrepreneurial drive and exceptional business instincts, that help to establish Ralph as a top agent in the real estate market in downtown Toronto.
