Toronto’s housing market appears to be in a period of transition, with short-term volatility masking deeper structural challenges. Affordability remains stretched, ownership housing construction is slowing sharply, and the market is showing a split, with sales activity starting to rebound after hitting historic lows, while longer-term supply pipelines for single-family homes and condos are weakening. This combination creates a market that seems soft today but is quietly setting the stage for significant pressure in the future.This market situation was highlighted in an August report from Edge Realty Analytics, which noted that while recent data points to tentative signs of stabilization, deep structural imbalances are already laying the groundwork for major shifts.Sales Activity After a deep slump through the first quarter of 2025, sales activity across the Greater Toronto Area has begun to recover. Seasonally adjusted sales plunged to two-decade lows in February and March, but momentum turned in the spring. By July, sales were up 13% month-over-month and 10.9% year-over-year, for the strongest monthly gain since October 2024. Transactions were running 35% above their March trough.This rebound, however, comes from depressed levels. Per capita sales in Ontario remain near all-time lows, comparable to recessionary conditions, and many deals in July were driven by sellers lowering prices to meet market realities.Prices Under Persistent PressureToronto’s housing market remains firmly in correction mode despite improving sales. The MLS House Price Index slipped another 0.2% month-over-month in July and is now 22.6% below its peak, leaving values only modestly above levels seen in late 2020. Median prices fell 4.2% in July alone (not seasonally adjusted), while a Wahi survey found that 97% of GTA neighbourhoods recorded sales below list price.Condos are underperforming relative to single-family homes, with values down 4.8% year-over-year in March. Affordability remains challenging, but there are marginal improvements as borrowing costs decline. Construction Pullback Signals Future Supply CrunchPerhaps the most consequential development for Toronto’s housing outlook is the steep drop in new ownership housing supply. Total dwellings under construction across the GTA declined 8% year-over-year in June, with the number of units falling sharply from peak levels. The condo segment is particularly distressed; Urbanation reports only about 1,000 new condo sales in the GTA in the first half of 2025, versus a more typical 15,000 by mid-year. Starts have fallen to multi-decade lows, with Urbanation noting Q1 2025 new condo sales being the weakest since 1995. With completions peaking in 2025, the market is heading toward a notable undersupply later in the decade if preconstruction activity does not recover.Single-family housing construction is also highly constrained, with detached housing making up a shrinking share of total under-construction activity. Permits in Ontario are at 40-year lows, pointing to worsening structural shortages in this segment.While ownership housing activity weakens, rental construction is accelerating. Purpose-built rentals accounted for a record 51% of unit starts in January, with nearly 20,000 rental units now in the pipeline. This tilt toward rentals reflects both policy incentives and shifting market dynamics but sets up a potential scarcity of ownership housing in the long run.Rental Market Weakening Amid Supply SurgeDespite strong rental construction, Toronto’s rental market is already showing signs of oversupply. Rentals.ca data show Toronto asking rents fell 6% y/y in July. Incentives are now common, with 65% of purpose-built units offering them in the second quarter, nearly double the share from a year earlier.This softening is expected to continue as population growth slows and a wave of completions adds further supply. For many owners, rising maintenance fees, insurance costs, and the City of Toronto’s proposed 6.9% property tax hike for 2025 may tip the balance toward selling, adding further pressure to the resale market.Temporary Weakness, Structural ShortageLooking ahead, analysts suggest sales likely bottomed in the first quarter, with single-family homes poised for recovery in early 2026 as listings dry up. The rental market, however, is expected to remain weak for another year, weighed down by high supply. Condo prices are also likely to soften further through 2026 given record completions, but current low sales levels mean developers are not launching enough new projects, which in turn means the market is planting the seeds of a future shortage once current construction waves are finished.