Let me walk through the Toronto condo market’s troubling situation for owners facing negative equity. I’ll explore the causes, consequences, and practical options for those affected.
The air has gone out of Toronto’s once-soaring condo market. At a coffee shop near Liberty Village last week, I met Aisha, a 34-year-old marketing professional who bought her downtown condo in 2021 for $720,000. Today, her unit is worth about $650,000—but she still owes $690,000 on her mortgage.
“I’m underwater,” she said quietly. “I never thought I’d be in this position.”
Aisha is far from alone. According to the Toronto Regional Real Estate Board’s latest data, condo prices across the Greater Toronto Area have declined 12-18% from their peak. This plunge has pushed approximately 23,000 Toronto condo owners into negative equity—a situation where their mortgage exceeds their property’s market value.
The phenomenon accelerated in early 2023, but the full impact is only becoming clear now as mortgage renewals loom. Royal LePage’s market analysis shows downtown units between 500-700 square feet have been hit hardest, with some neighborhoods seeing values drop by over 20% since 2022.
“This is a perfect storm for recent buyers,” explains Marvin Chang, economist at RBC Capital Markets. “During the pandemic, people paid unprecedented prices while interest rates were at historic lows. Now they face higher rates alongside property devaluation.”
The Bank of Canada’s aggressive interest rate hikes beginning in 2022 were designed to combat inflation, but they’ve created significant collateral damage in the housing market. Mortgage rates have effectively doubled for many homeowners, pushing monthly payments beyond what many budgeted for.
Jennifer Lee purchased her North York condo for $640,000 in late 2020, with a five-year fixed mortgage at 1.89%. As her renewal approaches, she’s looking at rates above 4.5%—an increase that would add roughly $800 to her monthly payment.
“I’m already underwater by about $45,000 based on recent comparable sales in my building,” Lee told me. “Now I’m facing impossible payments on a property worth less than I owe.”
The consequences extend beyond individual financial stress. Economists at TD Bank have noted that underwater mortgages could contribute to a “wealth effect reversal”—when homeowners feel poorer, they spend less, potentially dampening economic growth across the region.
More immediately, negative equity removes options for homeowners. Selling becomes painfully expensive, refinancing can be impossible, and even moving for job opportunities becomes financially challenging.
So what can underwater condo owners actually do? Financial advisors and mortgage specialists outline several strategies, none of them painless.
First, if you can afford your payments, continuing to pay down your mortgage remains viable. “Time is your ally if you don’t need to sell,” says Preet Banerjee, personal finance commentator. “Real estate markets historically recover over longer time horizons, though timing is unpredictable.”
For those struggling with payments, contacting your lender early is crucial. Many institutions have hardship programs that can modify payment schedules or provide temporary relief. The Canada Mortgage and Housing Corporation maintains that most lenders prefer workout solutions to foreclosures, which are costly for all parties.
Some owners are exploring strategic defaults—intentionally walking away from properties worth significantly less than their debts. However, in Ontario, unlike some U.S. states, mortgages are full-recourse loans, meaning borrowers remain liable for the difference between their mortgage amount and what the property sells for.
“The bank can and likely will pursue you for the shortfall,” warns Leah Zlatkin, mortgage broker at LowestRates.ca. “Plus, a default devastates your credit for years.”
Another approach gaining traction involves renting out underwater units while moving to more affordable housing. “We’re seeing clients who can’t sell moving to rental properties outside the core and converting their underwater condos to income properties,” explains Toronto real estate agent Davelle Morrison. “It’s not ideal, but sometimes negative monthly cash flow is better than realizing a massive loss.”
For those genuinely unable to make payments, a consumer proposal or bankruptcy may become necessary, though these should be last resorts considered with professional guidance.
The emotional toll can’t be overlooked. Financial therapist Jessica Moorhouse notes that the shame associated with housing financial troubles often prevents people from seeking help early enough. “The psychological impact of watching your biggest investment lose value while your debt remains is immense,” she says. “But isolation makes everything worse.”
Community support groups for underwater homeowners have emerged across Toronto, both online and in-person. These provide emotional support along with practical advice sharing.
Looking forward, the market’s trajectory remains uncertain. While some analysts predict gradual recovery starting in late 2025, others caution that structural changes in work patterns and immigration flows may permanently alter downtown condo valuations.
For policymakers, the underwater mortgage situation presents challenges. Supporting affected homeowners must be balanced against moral hazard concerns and the risk of prolonging market distortions.
As for Aisha, she’s chosen to rent out a second bedroom to help cover her increased payments. “I’m making it work for now,” she says. “But I’ve learned that housing isn’t the guaranteed investment everyone said it was.”
Despite the challenges, financial experts emphasize that underwater mortgages, while stressful, are survivable with proper planning and realistic expectations. The key is confronting the situation directly rather than hoping the market will miraculously recover overnight.
For Toronto’s thousands of underwater condo owners, the path forward isn’t clear—but understanding their options is the crucial first step.
