Following a year of significant challenges, Toronto's real estate market could find a path to stability in 2026, fueled by the prospect of steady interest rates and a potential rebound in buyer confidence. Economists and industry experts suggest that after the economic uncertainty of 2025, these factors may help sales volume recover.
A Year of Decline Sets the Stage for Recovery
The Toronto Regional Real Estate Board's (TRREB) year-end data for 2025 painted a clear picture of a market under pressure. Sales across the Greater Toronto Area (GTA) fell by 11.2 per cent compared to 2024, while new listings surged by 10 per cent. This increase in supply allowed buyers to negotiate, leading to lower selling prices.
The annual average selling price in the GTA dropped to $1,067,968 in 2025, a decrease of 4.7 per cent from the $1,120,241 recorded in 2024. The decline continued through December, with the average selling price falling 5.1 per cent year-over-year to $1,006,735. The composite benchmark price, representing a typical home, saw a steeper six per cent drop to $942,300.
All major dwelling types experienced sales declines in December 2025. Detached home sales dipped 1.7 per cent, semi-detached fell 6.9 per cent, townhouses plunged 22.5 per cent, and condo sales decreased by 11.2 per cent. The condo segment faced a particularly difficult year, grappling with falling prices, reduced sales of new and existing units, significant inventory, and multiple project cancellations.
The Stabilizing Force of Steady Interest Rates
A key factor expected to influence the 2026 market is the Bank of Canada's monetary policy. Economists widely anticipate the central bank will hold its benchmark interest rate steady at 2.25 per cent throughout the year. This predictability, according to Tom Storey, a realtor with Royal LePage, could be a crucial catalyst for buyer activity.
"That certainty with rates remaining where they are is going to be a big factor helping people make decisions this year," Storey stated. He noted that fixed mortgage rates appear to be at their lowest point for the foreseeable future, which may encourage potential buyers to enter the market rather than wait for further cuts.
The economic headwinds of 2025, largely stemming from trade war tensions with the United States, significantly dampened real estate activity. However, with greater clarity emerging on major trade agreements and interest rates holding firm, a foundation for renewed confidence is being laid.
Affordability: A Complex Equation for Buyers
While lower prices have improved some affordability metrics, experts caution that the true cost of homeownership requires careful calculation. TRREB President Daniel Steinfeld acknowledged that "improved affordability has set the market up for recovery" after selling prices and mortgage rates trended lower in 2025.
Tom Storey offered a more nuanced perspective, emphasizing that a lower purchase price does not automatically translate to an affordable monthly cost for mortgaged buyers. "In 2025 we had a meaningful change in the prices of real estate. We had a much more minor change in the true cost of owning real estate if you need a mortgage," he explained. He strongly encourages buyers to focus on their projected monthly expenses rather than just the sticker price.
Looking ahead, Storey predicts the major price corrections have likely occurred, but expects some segments to perform better than others. He anticipates continued softness in the new construction condo market and believes some downward pressure on resale prices may persist, even as the market stabilizes. The overall outlook suggests that even a modest improvement in consumer confidence could be enough to help sales volumes pick up as 2026 progresses.
