Fiscal Stimulus vs. Falling Prices: The Real Estate Story the Federal Budget Isn't Telling You

Ciao! Welcome to a new episode of Helping YOU Build Build Wealth Through Real Estate...Brick by Brick with me, Nico James-Bock, Founder of The CondoWiz™ Group and Broker at Keller Williams Co-Elevation Realty in Toronto.  

The government just doubled the deficit to pour billions into capital projects, betting on future growth. But the numbers don't lie: Toronto's prices are still dropping. In this episode, we connect the dots between Ottawa's massive $78.3 billion budget, the Bank of Canada's muted rate cuts, and the very real decline in local home values.

What You Will Learn:

• The Real Target: Why the BoC is relying on the Budget's slow-moving stimulus instead of aggressive rate cuts.
• Where the Money Goes: Which key sectors (housing, infrastructure, defence) are getting the $170B+ investment and how that should affect long-term property values.
• The Disconnect: Why October's strong jobs report isn't enough to stop price declines (like the 7% condo drop) in the near term.
• Your Strategy: How to position your real estate investments now to leverage future fiscal growth while navigating today’s fragile market.

Next Steps: The market will closely watch the Inflation Rate data on November 17, and particularly the December 10 Bank of Canada Interest Rate decision, to see if the recent job strength is enough to keep rates steady.

Ciao ciao 👋🏼

Transcript

Welcome to Helping You Build Wealth Through Real Estate. We are diving into the key announcements shaping Canada's financial future this month, with a focus on major economic data and policy shifts. Today, we're connecting the dots between the Bank of Canada's strategy, the new Federal Budget, the October jobs report, and what it all means for your property portfolio. The central tension is this: Canada is navigating a period of immense trade uncertainty, particularly with the US, which has forced Ottawa to pivot towards significant fiscal stimulus. Keep an eye on the Inflation Rate on November 17 and, crucially, the next major Interest Rate decision on December 10.

[The Federal Budget - A Generational Shift]

Let's start with the 2025 Federal Budget, which is setting the economic tone. The government projects a massive $78.3 billion deficit, nearly double last year's forecast, and they are openly attributing the increase to the new spending and trade uncertainty. This is a deliberate shift: the budget commits to "generational" investments, including over $170 billion dedicated to housing, defence, and infrastructure over the next five years.

This spending is meant to tackle Canada's long-standing structural productivity crisis—the fact that we are not generating enough output per worker hour. To counter this, the government is introducing a "productivity super-deduction" and new, accelerated capital cost allowances for manufacturing and LNG equipment to make Canada's investment environment more competitive. Despite the spending, the government vows fiscal restraint, aiming to balance day-to-day operational spending in three years and achieving $60 billion in total savings over five years, which includes a reduction of about 40,000 public service positions by 2028-29.

[The Bank of Canada (BoC) Interest Rate Cuts]

Now, let's look at the monetary side. The Bank of Canada recently cut the benchmark overnight rate to 2.25%. The BoC sees this rate as the "right level" to keep inflation near 2% while the economy undergoes its structural adjustment. In fact, many economists suggest this 2.25% rate may be the low end of the neutral range, signaling the end of the current cutting cycle, not the beginning of a fresh one.

The BoC has been clear: they will leave the job of closing the output gap and stimulating growth to fiscal policy, meaning the new federal budget. While the BoC has provided substantial relief—a total of nine rate cuts since June 2024, amounting to 275 basis points—Governor Macklem has emphasized that fiscal stimulus is the more effective tool against tariff-generated weakness. This means that while some analysts expect the BoC may still be forced to cut to 2.0% in early 2026 due to the slow impact of the stimulus, for now, the ball is firmly in Ottawa's court.

[Real Estate Market Stats for October 2025]

How is the market reacting to all this policy? The story is one of caution and price fragility. Toronto remains the epicentre for price vulnerability, particularly in the condo sector, which is suffering from high inventory and immigration slowdowns. While we have seen sales activity rebound by 36% from the spring lows, this hasn't been enough to stop prices from falling. The average selling price in Toronto dropped 5.2% year-over-year to $969,700 in August. The condo sector saw the sharpest drop, falling 7% to $571,500. Long-term, population growth and policy levers drive massive gains, but in the near term, affordability remains a monumental challenge.

[Employment & Immigration Stats]

The one piece of positive news comes from the labour market. The October Labour Force Survey showed a stronger-than-expected net employment gain of 66,600, building on September's surprise, which helped push the national jobless rate down from 7.1% to 6.9%. However, a closer look shows this growth was driven primarily by part-time work, though the private sector did add 73,000 jobs for its first gain since June. Job growth was strong in retail, transportation, and recreation, but notably, employment in construction declined by 15,000 jobs.

The immigration component will drastically impact the housing market going forward. In a major policy shift, the government plans to reduce the target for new temporary resident admissions from over 673,000 in 2025 to 385,000 in 2026 to ease pressure on housing and services. Permanent resident targets will be held steady at 380,000 per year. This massive cut is Ottawa's attempt to "take back control," but it creates a trade-off that will stress key labour sectors like construction.

[Discussion - Structural Productivity Crisis and Conclusion]

In summary, we see a clear economic divide: The true driver of risk remains external. The unsettling US attitude towards the free trade agreement is the primary factor displacing workers and holding back investment, exacerbating our domestic structural productivity crisis. The Bank of Canada has done its part by easing rates but is now relying on the fiscal stimulus from the new Budget. That capital spending is massive, but it will take considerable time to impact the overall economy and solve the immediate problems.

The silver lining is Canada’s strong fiscal foundation: a triple-A rating and the lowest net debt-to-GDP ratio among the G-7. This gives the government the room to make these bold investments.

This episode reveals that while Ottawa is betting big on long-term fiscal stimulus to fuel generational growth, the immediate market reality—like falling prices—suggests investors must remain disciplined; the true measure of success will be whether this capital injection can overcome near-term affordability concerns and trade uncertainty to stabilize real estate values by early next year. Therefore, stay tuned for the December 10th Bank of Canada decision and future inflation data, as these will be critical indicators of whether policy is truly bridging the gap between national ambition and local market performance.

Ciao 👋🏼

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