Toronto Housing Market Crisis: Developer Debt Keeps Rising

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Toronto’s new housing market is facing its worst downturn in decades. Developers are now pledging unsold condos as collateral to secure short-term loans and maintain liquidity. This growing trend reflects an acute cash shortage among builders and threatens to trigger a wave of bankruptcies just as the government is pushing for an increase in housing construction, Bloomberg reports.

Eastbrook Capital notes a surge in demand for so-called inventory loans, which were nearly nonexistent a year ago. They now account for about 60% of all financing requests.

CEO Nav Deo says the company is willing to fund new projects, but most applications come from developers seeking to refinance existing debt — and those are rejected. He adds that many developers who relied on refinancing have already gone bankrupt, while others are stuck holding unsold inventory they cannot sell in the current market.

Nick Gulizia, head of Reap Capital Corp., confirms that developers increasingly use unsold condos as collateral because proceeds from earlier projects have dried up. He calls this practice a clear sign of financial distress — companies are borrowing against properties that generate no income, which only delays the inevitable correction rather than solving it.

Prices Drop Across the GTA

Completed condos in Toronto now sell at prices 19% below their peak. According to WOWA.ca, the benchmark home price in the Greater Toronto Area (GTA) in August 2025 was CAD 969,700 ($708,000) — down 5.2% year-on-year.

The average sale price dropped 4.9% to CAD 1.02 million ($746,000), while the median price fell 4.1% to CAD 887,000 ($647,000).

By housing type:
- Detached homes: –7.2%, to CAD 1.3 million ($958,000)
- Townhouses: –4.5%, to CAD 946,395 ($691,000)
- Condos: –4.8%, to CAD 642,195 ($469,000)

Total GTA sales reached 5,211 transactions, up 4.7% year-over-year, but 15% below July levels.

In the city of Toronto itself, the average price fell to CAD 992,085 ($724,000), down 3.6%, while the median dropped to CAD 800,000 ($584,000).
The city’s benchmark price declined 3% to CAD 953,800 ($696,000), with 1,779 sales, up 3.6% year-over-year.

Developers Under Pressure

For developers, the price correction translates into shrinking profits or direct losses. Unsold homes remain on balance sheets as dead inventory, straining finances and blocking new project launches.
Meanwhile, housing remains largely unaffordable, and though rents have eased slightly, they still burden household budgets. Economists call this a structural housing deficit, one that Prime Minister Mark Carney has vowed to fix through accelerated construction — a promise now increasingly difficult to keep.

Structural Weakness and Global Factors

Many projects launched during the market’s boom years are now reaching completion — just as demand has weakened. Since the 2022 interest rate hikes, condo sales have slowed sharply and never recovered.

Trade tensions with the United States have further dampened investor confidence, with many delaying or avoiding riskier ventures. As a result, the condo sector — once the engine of Toronto’s housing supply — is now stagnating.

Inventory Loans as a Lifeline

In this environment, inventory-backed loans have become a survival tool. Developers use them to raise cash by mortgaging unsold condos — buying time in hopes of a future price rebound.

However, these loans are often used to service old debts rather than build new housing, effectively swapping one loan for another, often at a higher interest rate.

Among the key lenders is Firm Capital Corp., which offers loans against unsold condos at rates of 7.5% and above. The firm lends only a fraction of the property’s market value to reduce risk if prices fall further.

Recent examples include a CAD 59 million loan for 16 luxury condos in Toronto’s Rosedale neighborhood and CAD 12.1 million for 18 townhouses in Whitby.

Vice President of Mortgage Investments Michael Carragher explains that the company accepts finished condos as collateral only at a steep discount — “50 cents on the dollar.” This, he says, ensures repayment even in case of further declines.

Carragher adds that the lack of new housing starts in 2026–2027 could create a supply shortage, eventually pushing prices up again — making such loans an important bridge for developers to stay afloat until recovery.

Some builders are converting condos into rental units to qualify for government-subsidized programs. This allows them to complete projects and prepare for future demand if construction stagnates.

Carragher believes the absence of new starts will be the main challenge for the Toronto market in the coming years, potentially leading to an acute housing shortage by 2027.