Desjardins’ Key Findings
A report by Desjardins, which had been published on May 23, 2025, has issued caution over a lack of fiscal transparency by the Canadian Liberal government from its delays of the 2025 Budget until the fall. Because of the government’s failure to publish timely deficit forecasts and fiscal targets, Canada risks eroding its fiscal credibility. Increased spending and tax cuts, driven by broader economic pressures from U.S. policies, are the main drivers of concern. Desjardins projects federal deficits to be much larger than had previously been planned, estimating a cumulative deficit of a quarter trillion dollars over the next five years (2025-2030). In fact, it has been predicted that Canada will issue $600 billion in debt in 2025-2026, approaching levels that had been seen during the peak of the pandemic in 2020-2021 (Graph 3 of the Report). This lack of transparency and growing deficits could lead to a sovereign rating downgrade, impacting Canada’s standing in global markets.
Impact on Real Estate
Toronto and Vancouver have already faced significant price drops and cooling demand in their condo markets, with prices in the Greater Toronto Area down 16.5% and Greater Vancouver down 9% since their 2022 peaks, alongside sales declines of 30% and 20% year-over-year as of April 2025, respectively.
Higher Interest Rates
Large-scale government borrowing to finance these deficits may further drive up interest rates by increasing credit demand, with the Bank of Canada potentially raising rates to curb inflation from heightened spending, which would further increase mortgage borrowing costs, intensifying pressure on these already strained markets. Additionally, a potential sovereign rating downgrade could raise borrowing costs for developers, slowing new housing projects and exacerbating supply shortages.
Outlook: A Deepening Crisis – Canada needs Confidence Restored Now
Without immediate transparency and the communication of a plan by Canada’s new Prime Minister Mark Carney, Canada’s fiscal mismanagement and the delayed Budget 2025 are poised to deepen the economic strain, likely pushing the real estate market into a prolonged downturn, as affordability worsens and global confidence in Canada’s financial stability erodes further.
Reference: Desjardins Economics (2025). Mixed Signals on the Budget Risk Eroding Canada’s Federal Fiscal Credibility.
Additional Information: https://palaceplace.com/are-we-really-in-an-economic-crisis
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Palace Place, 1 Palace Pier Court, and Palace Pier, 2045 Lake Shore Boulevard West, in Humber Bay Shores.
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Luke Dalinda, Realtor. Royal LePage Real Estate Services Ltd., Brokerage.
View all current and past Palace Place listings for sale here.