Toronto’s housing market is split in two. Let’s understand the dramatic divergence in Toronto’s condo market.

Table of Contents

1. The Two Markets: A Tale of Haves and Have-Nots

2. Why Luxury Condos and Large Units Are Holding Strong

3. Why Shoebox Investor Condos Are Crashing

4. What This Means for You

5. What Happens Next?

6. The Bottom Line

Key Takeaways

• Market Fracture: Toronto is no longer one market; luxury/large units are stable, while small investor units are down 20-30%.

• End-User vs. Investor: Demand has shifted from ROI-seeking investors to end-users who value livability and space.

• Negative Cash Flow: Small units often cost $600+/month more to carry than they generate in rent, driving mass sell-offs.

• Neighborhood Resilience: Established areas (Yorkville, Annex) remain insulated from the speculation-driven crash.

The Two Markets: A Tale of Haves and Have-Nots

Toronto’s real estate market has fractured into two segments that are moving in opposite directions:

This isn’t a subtle difference—it’s a complete market split.

Why Luxury Condos and Large Units Are Holding Strong

1. End-Users Are Buying, Not Investors Luxury condos appeal to people who actually want to live in them—downsizing empty-nesters, professionals, families. These buyers:

• Put down 20%+ (not 5%)

• Plan to stay 5-10+ years

• Care about livability, not ROI

• Less affected by rising interest rates (larger down payments = smaller mortgages)

2. Livable Space Is in Short Supply For years, developers built tiny units (400-500 sq ft) because investors would buy anything. Now that investors are gone, people shopping for actual homes want space. The problem? There aren’t enough 2-bedroom, 800+ square foot units.

3. Premium Neighborhoods Stay Desirable Areas like Yorkville, Rosedale, High Park, and the Annex never relied on investor speculation. People want to live there for quality of life—walkability, schools, transit access.

4. International and High-Net-Worth Buyers Toronto remains attractive globally. Compared to London, New York, or Hong Kong, luxury Toronto condos are still relatively affordable. High-net-worth buyers with cash aren’t fazed by interest rate increases.

Why Shoebox Investor Condos Are Crashing

1. Investors Have Exited En Masse In 2021, investors made up over 50% of condo purchases in Toronto. By 2025, that number has dropped dramatically. Why?

• Negative cash flow: Rent doesn’t cover mortgage, property tax, and maintenance fees.

• No capital appreciation: Prices are down 20-30%, wiping out years of supposed gains.

• Better alternatives: GICs pay 5% with zero risk. Why gamble on condos?

Real Example: A 450 sq ft unit in CityPlace costs $2,800/month in carrying costs (mortgage, maintenance, property tax). It rents for $2,200. That’s $600/month in losses.

2. Nobody Wants to Live in a Shoebox End-users—people who actually want to own a home—don’t want 400 square feet. These units were always designed for investors to rent out, not for people to live in long-term. Now that investors are gone, there’s no natural buyer. First-time homebuyers can afford these units, but they’d rather rent something bigger than own something tiny.

3. Oversupply in Investor-Heavy Buildings Buildings where 70-80% of units were investor-owned are seeing mass listings as owners try to exit. Too many units, not enough buyers.

4. Rental Market Weakening Rents for small units have dropped 7-13% year-over-year. With reduced immigration and fewer international students, demand for tiny rental units has cratered.

What This Means for You

If You’re a Buyer:

• Opportunity in distressed investor condos: If you’re comfortable with a small space, there are incredible deals in the 400-500 sq ft range.

• Competition in the luxury market: If you want a 2-bedroom, 900 sq ft condo in Yorkville, expect bidding wars.

• Freehold homes holding value: Detached and semi-detached homes in desirable areas haven’t seen the same price drops.

If You’re a Seller:

• Small investor condo? Price aggressively: Don’t expect 2021 prices. Price 20-30% below peak to sell within 60 days.

• Large condo or freehold home? You have leverage: List at market value. Don’t rush or panic.

• Consider renting instead of selling: If selling at a loss, renting might allow you to wait out the downturn.

What Happens Next?

The market divergence will likely persist for 2-3 years:

2025-2026: Continued Weakness in Investor Condos More forced sales as investors who bought in 2020-2021 face renewal shocks or pre-construction closings. Prices for small units may drop another 5-10%.

2027-2028: Recovery Begins (But Not Uniformly) As inventory is absorbed and no new projects launch, supply tightens. But recovery will favor:

• Larger units that end-users want

• Prime locations

• Buildings with low investor concentration

Shoebox condos may never fully recover to 2021 prices. They were artificially inflated by investor speculation that’s unlikely to return at the same scale.

The Bottom Line

Toronto’s housing market isn’t one market—it’s two:

• Market 1: Livable, end-user properties in good locations remain strong.

• Market 2: Investor-driven shoebox condos are in crisis.

Understanding which market your property sits in is critical to making smart buying, selling, or holding decisions in 2025-2026. Need help navigating this split market? We specialize in GTA real estate and can provide data-driven analysis on whether your property is in the strong or weak segment. Contact us today.

About the Author: Aman Harish

Aman Harish is a Co-Owner and Mortgage Broker at Canadian Mortgage Services. With over 14 years of experience navigating the complexities of the Canadian lending landscape, Aman specializes in helping homeowners and buyers develop proactive renewal strategies and optimize their debt structure in challenging economic climates. His commitment is to ensuring clients not only secure the best rates but also build long-term financial resilience.