The Bigger Economic Picture:
The contrast between Canada and the U.S. is stark. South of the border, GDP growth remains strong (3%+), while here at home, we’re struggling with a growth rate of -1.6% GDP. And yet, both economies are grappling with the same forces: slowing job growth, higher costs, and the disruptive impact of artificial intelligence (AI).
AI is fundamentally deflationary. It allows companies to operate leaner, more efficiently, and more profitably, while reducing headcount. This dynamic is reshaping how central banks balance their mandates:
- The U.S. Federal Reserve: Inflation + Employment.
- The Bank of Canada: Inflation only, however, the BOC appears to be changing their mission statement to incorporate unemployment and economic stability.
As unemployment raises, particularly among younger and lower-income workers, central banks may be compelled to prioritize job protection over strict inflation control. Translation: we could be entering a prolonged era of low interest rates, supported by government stimulus and targeted policy.
What This Means for Toronto Real Estate
Let’s be clear: one rate cut will not turn the market overnight. However, perception matters. If buyers and sellers believe that cheaper money and liquidity are forthcoming. It could lead to behavioural changes in buyers’ outlook and ultimately influence their decisions.
Here’s Where We’re Seeing Activity Right Now:
1/ First-Time Buyers Re-Emerging
Toronto condo pricing have corrected significantly since 2023, from an average of $743,000 to ~$650,000. Lower purchase prices and lower rates mean the income required to qualify for a typical condo has dropped from approximately $140,000 to around $100,000-$110,000, with average carrying costs down by nearly $900/month, which is significant. Suddenly, the rent-vs-buy equation gap is closing. For many, buying now makes more sense than paying rent.
2/ Move-Up Buyers on the Move
Households in starter condos or townhomes are looking to scale into the first-time buyer low-rise segment, typically in the $1.1M-$1.4M range, often driven by growing families and the. need for outdoor space. These “move-up” buyers, who have owned their condos for over a decade and have the equity, are creating activity in both condo resales and entry-level freehold homes.
3/ Parents Nudging Adult Children
After years of living in their parents’ basements or in rental apartments, younger buyers are being encouraged (and often financially supported) by their parents to take advantage of the market correction. The Bank of Mom and Dad is a very real thing!
4/ Condo Supply Shock Coming
With future residential resale development pipelines stalling, Toronto is facing a decade-long drought in new condo and home completions, starting around 2028. Today’s condo buyers are purchasing below replacement cost, which marks a long-term opportunity for those with a five-year-plus investment horizon.
Fixed vs. Variable: What Buyers Should Know
With the overnight rate now at 2.5%, fixed rates and variable rates are almost even.
Here’s how Jason Friesen breaks it down:
- Variable: Best for those comfortable with risk and potential volatility. Benefit: you can always lock in later.
- 3-Year Fixed: The “middle ground,”giving flexibility to renegotiate sooner without heavy penalties.
- 5-Year Fixed: Maximum stability but significant penalties if rates drop and you want out.
Bottom line: it’s not a one-size-fits-all approach. Your decision should be predicated on a combination of your budget, risk tolerance, and long-term plans.
The “Distress” Sale Narrative vs. Reality
If you’ve been following headlines, you’ve heard about renewal cliffs, the power of sales, and defaults. But the data tells a different story:
- Only 0.23% of Canadian mortgages are in arrears, which is a negligible number by global standards.
- Stress test rules (introduced in 2018) forced borrowers to qualify at rates higher than today’s, creating a cushion.
- Banks are showing greater willingness to work with clients, extending amortizations or offering restructuring options.
Yes, there’s pain among alternative lender clients renewing 4-5%, but the doom-and-gloom predictions of a collapse have not materialized and are unlikely to do so.
Pre-Construction Closings & “Blanket Appraisals”
One of the most underreported stories: how pre-construction condos purchased at peak pricing ($1,400-$1,600 per square foot) are being financed today.
Instead of appraising units at their current market value, some banks (including RBC) are using original purchase prices to fund mortgages, even if today’s value is 25% lower. Regulators are looking the other way.
Some industry experts are claiming it is a developer bailout, ensuring projects close and buyers don’t walk away en masse. It’s controversial, but it’s keeping the developers and the new condo market afloat.
Looking Ahead: Policy & Affordability
Expect more government intervention. In the U.S., there’s talk of declaring a housing affordability emergency and exploring creative tools, such as portable mortgages. Canada is likely to follow with tweaks to the stress test, CMHC rules, and targeted programs for first-time homebuyers.
But as Jason Friesen points out, these are band-aids. Real affordability comes from economic growth, not tinkering with policy on the sidelines. Until Canada addresses productivity, wages, and competitiveness, Toronto real estate will remain a tale of haves and have-nots.
Key Takeaways for Toronto Buyers & Sellers
- Lower Rates Are Here: Expect more cuts into 2026, with variables potentially dropping into the low 3% range.
- Affordability is improving: First-time buyers should recheck their pre-approvals, as qualifying power has improved.
- Long-Term Value: With condo pipelines drying up, today’s below-replacement pricing is creating a compelling case for desirable end-user condos.
- Stick to Your Budget: Don’t stretch beyond your comfort levels, as there are still many economic headwinds and uncertainties ahead.
- Thing Long Term: Toronto Real Estate is not a get-rich-quick scheme and should be approached with a 5- to 10-year investment horizon.
Final Word from Fox Marin
At Fox Marin, we’re more than Realtors, we’re strategic advisors who help clients navigate Toronto’s real estate market with clarify, confidence, and results. Whether you’re buying your first condo, moving up to a family home, or investing for the long term, our role is to educate, protect, and guide you.
If you’ve been waiting on the sidelines, now is the time to revisit your numbers and your goals. The landscape is shifting, and being prepared today will position you for success tomorrow.
Fox Marin has earned its reputation as Toronto’s premier downtown luxury real estate team, backed by over $580 million in sales, more than 1,000 successful transactions, and over 450 glowing 5-star Google Reviews. Discover the advantage of working with a proven team with a track record for winning results.
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.
