Canada’s largest real estate market runs on speculation, not housing demand. That’s the core message from the Bank of Canada’s (BoC) latest report, outlining the mechanics of a Ponzi scheme, without dropping the P-bomb. They warn that falling investor returns, driven by higher interest rates, now threaten builder models, suggesting these homes aren’t viable as homes—only as financial instruments.
Toronto Condo Pre-Construction Sales Fall To The Lowest Level Since 1991
Toronto condo pre-construction sales, annualized quarterly average.
Source: Urbanation; BoC; Better Dwelling
The Toronto real estate market isn’t just cooling—it’s broken. The region’s developers sold just 1,599 new condos in 2025, marking the worst year since 1991. For those new around here, that was the start of the country’s largest real estate crash to date.
Declining sales weren’t due to a lack of inventory to buy. Developers are sitting on 3,975 completed and unsold new homes in December, up 56.8% from a year prior. Inventory is at its highest point in almost a decade, a level only seen twice before: during the early 1990s crash, and after the 2014 oil slump that ended with the foreign buyer mini-bubble and Toronto being revealed as a global money laundering capital. Who knew that was the healthiest the market would be for the next decade?
BoC Explains Toronto New Condo Sales, Describes Textbook Ponzi
The BoC attributes Toronto’s condo boom to “strong population growth, low interest rates and robust investor demand,” but warns that times have changed. Condos no longer deliver the short-term returns as population growth slows and rates climb.
Most condos are pre-construction sales, helping to de-risk project financing. The BoC notes that banks require 70% of units sold before issuing construction loans. As a result, the industry courts investors who are attracted to the high leverage returns that can be made with just 20% down, often planning to flip units before completion to avoid needing the full financing.
That leverage works both ways, and the central bank notes the math turned against the strategy. The report explicitly states, “Toronto’s condos are no longer providing substantial returns for short-term investors,” citing rising rates and slowing population growth.
The BoC admits this environment is “challenging the business model of condo builders,” effectively conceding that the region’s model was reliant on short-term speculation. When “returns” evaporated, so did the ability to build.
Canada’s central bank is effectively stating that the “business model” of building housing in Toronto is dependent on investors making “substantial returns,” not end-users needing housing. An investment that depends on incoming new money to validate debt, rather than income from the asset itself, is the textbook definition of Ponzi finance.
“Ponzi Finance units must borrow or sell assets to pay interest… relying on the expectation that the appreciation of asset prices will exceed the interest rate.” — Hyman Minsky, The Financial Instability Hypothesis
That’s right. I kept a textbook for over 20 years for this exact moment.
BoC Blames Slowdown On Population Growth, Ignores Data
Channelling the energy of OJ pledging to find the real killer, the BoC attributes the slowdown to “easing population growth” and rising interest rates. Slower immigration is equated with the drop in demand, while rising interest rates throttled credit. It’s a convenient supply and demand narrative, and sounds very logical. That is, as long as one doesn’t look at the actual data available.
Toronto New Condo Prices Peaked Before Population Surge
Toronto new condo prices.
Source: Altus Group.
Toronto real estate peaked in Q1 2022, when interest rates were just 0.25%. Canada was just recovering from record-low population growth after the pandemic-induced lockdown. That was nearly a full year before the historic surge of 2023, when Canada added 1.2 million people. If demand were the primary driver of home prices, 2023 should have been the most expensive in history. Instead, prices collapsed as the population climbed to record highs.
Prices peaked before the first rate hike. Rate hikes can’t throttle credit before they’re made, but the threat can deflate speculative expectations fast. Investors made up over 70% of buyers, with Big Six banks holding the mortgages on most of the cashflow negative condos. It doesn’t make sense in the context of the BoC’s argument, but nice try.
The BoC is mourning the loss of speculative capital after outlining a Ponzi scheme. Starts may slow in the short-term, but a market that caters to speculators isn’t creating housing. It’s creating financial instruments that people occasionally live in. Real supply only returns when land values better reflect the incomes of the people living on that land, not a return speculators find attractive only because of a credit bubble.
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