The rapid expansion of housing financialization (REF) has profoundly reshaped China’s subnational fiscal landscape, yet the dynamic nature of this relationship remains under-explored. This study investigates how the impact of REF on fiscal deficits (DB) evolves over time and identifies the specific transmission channels mediating this influence. First, we construct a multidimensional REF index by integrating enterprise, household, market, financial, and industry indicators via the fuzzy-TOPSIS method. A Markov Regime Switching model identifies three distinct volatility regimes, revealing that REF dynamics are highly sensitive to policy shifts and exhibit significant path dependency. Second, using a Time-Varying Parameter Vector Autoregression model, we find that REF initially functioned as a fiscal stabilizer providing short-term revenue relief; however, as financialization deepened, REF transformed into a procyclical driver of deficit expansion. […]