A condominium under construction in downtown Toronto in January, 2025.Fred Lum/The Globe and Mail
J. Ari Pandes is an associate professor of finance and an associate dean at the University of Calgary’s Haskayne School of Business.
Across the country, stories are emerging of preconstruction condo buyers facing the unsettling reality that their units are now worth less than what they agreed to pay years ago. It is a stark reminder that in housing markets — no matter how slick the narratives are — gravity eventually reasserts itself.
The current pressure on condo buyers is only the most visible part of a deeper, long‑standing misunderstanding about housing as an asset. Canadians routinely treat homes as reliable investments, sometimes even primary retirement vehicles. But economically, a home is overwhelmingly a consumption good with an investment component, not the other way around. Most of the money homeowners pour into their homes — maintenance, repairs, upgrades, insurance, property taxes and mortgage interest — creates continuing consumption value, not financial return. Yet the popular belief that real estate is “the safest bet” blurs the line between consumption and investment, obscuring the fact that much of what people think is wealth‑building is really just the cost of living.
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And when markets soften — as condo buyers are now discovering — the risks of housing suddenly become impossible to ignore. Illiquidity is one of them. Unlike a portfolio of securities, housing cannot be sold in pieces or offloaded quickly to respond to market conditions. The timing of a home sale is rarely discretionary when life events intervene, and sellers often face buyers influenced by the exact same macro forces. For those exposed to preconstruction risk, illiquidity is even harsher: They committed to a future asset without the ability to adjust their position as economic conditions changed.
Concentration is another risk. Even financially sophisticated households end up with the majority of their net worth tied to a single property in a single neighbourhood of a single city. If this were a financial product, no adviser would recommend it. But in housing, we normalize this as prudent behaviour. The condo buyers in distress today are not unfortunate outliers — they are participants in a system that asks ordinary Canadians to take on extraordinary levels of undiversified exposure.
Layered on top of this is leverage. Mortgages amplify both gains and losses, and households tend to anchor expectations to the conditions present when they first take on debt. When rates rise or valuations soften, the math shifts abruptly. This is exactly what many preconstruction buyers are experiencing now: loans arranged or imagined during low-interest rate periods suddenly collide with today’s higher financing costs and lower appraisals. Leverage that once felt advantageous has now become a source of vulnerability.
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These dynamics feel new only because Canada has enjoyed a long stretch of housing appreciation. But the country — Toronto especially — has been here before. According to the Toronto Regional Real Estate Board, the average Toronto sale price peaked in 1989 at $273,698 after a dramatic run-up in the late 1980s, before dropping for seven consecutive years to $198,317 in 1996, a decline of roughly 27 per cent. It would take 13 years, until 2002, for prices to regain that nominal peak. And when adjusted for inflation, it took even longer: Toronto did not return to its 1989 purchasing power peak until around 2011, a full 22 years later. In other words, what looks in hindsight like extraordinary appreciation through the 2000s was, to a significant extent, a long recovery — catch‑up to values Toronto had already reached in 1989, not the creation of new inflation‑adjusted wealth. In that sense, today’s downturn isn’t teaching us something new — it’s reminding us of something we have seen before.
This history is not an argument that today’s cycle will mirror the early 1990s. But it is evidence that real estate is neither a guaranteed nor a rapid wealth generator — and forgetting that history is precisely what fuels recency bias. For a whole generation, housing has seemed to rise almost monotonically, and that experience has shaped behaviour: Households stretch for larger mortgages, invest heavily in improvements, and treat home equity as a kind of financial inevitability.
The truth is that homes deliver enormous non‑financial value — stability, community, belonging. Those are reasons to buy. But as financial assets, they come with structural constraints: They are expensive to maintain, difficult to trade, impossible to diversify, and usually purchased with significant leverage. The investment component is real but volatile, and its return path can be long and uneven. For home buyers now facing losses, this is not an individualized failure. It is the predictable outcome of society promoting an undiversified, illiquid, highly leveraged asset as if it were the ultimate life goal.