Why TD’s Rate Call Matters More to Investors Than the Headline Suggests
Every cycle produces a moment where the market gets ahead of the fundamentals, and TD deputy chief economist Derek Burleton just flagged one of those moments. Speaking at MortgageFest Canada in Toronto, Burleton said the case for a Bank of Canada rate hike is “not that compelling,” even as markets price in renewed tightening alongside the U.S. Federal Reserve. For investors, the gap between what the market expects and what the fundamentals support is exactly where opportunity and risk both live.
The core of the argument is an inflation divergence that matters more than most headlines let on. Core inflation in the U.S. sits near 3%, while Canada is closer to 2%, the actual target both central banks are chasing. That gap, paired with excess slack in Canada’s job market, is why TD’s base case has the Bank of Canada holding rather than following the Fed lockstep. Burleton put the odds of a hold at roughly 50%, with an alternative scenario of one hike, maybe two. That is not a confident forecast, and investors should treat it as such rather than banking on either outcome.
What should concentrate an investor’s attention is the yield story sitting underneath the rate debate. Five-year Government of Canada yields are up almost a full percentage point from February lows, and that has already worked its way into mortgage pricing. TD has pushed back its expected easing in five-year yields to next year, which means carrying costs on leveraged property stay elevated longer than many investors modeled just a few months ago. Financing assumptions built on an imminent rate relief narrative need revisiting now.
“I think the bottom is here, and I think now we can look for the next phase.”
That said, the housing backdrop Burleton describes is not a bearish one, it is a patient one. Ontario prices have corrected more than 20% since the pandemic peak, and Burleton believes the bottom has been reached, with prices down only about 3% year over year recently. That is the kind of stabilization long term investors should read as a signal, not a starting gun. He was explicit that there is no real tailwind coming to push the market up sharply, describing the outlook for sales and prices as fairly flat.
The segment detail is where the strategy sharpens. Burleton called the investor market “really quite soft right now,” with pent-up millennial demand still sidelined by living costs and yields. Detached and semi-detached properties across the GTA are already stabilizing, a meaningfully different story than condos, which face excess supply that may not clear until 2027 or 2028. For investors weighing entry points, that divergence matters as much as any rate decision. Ground-oriented product is finding its floor while condo inventory still needs time to work through the system.
TD’s national forecast for mortgage volume growth of 4% to 5% over the next two to three years is a modest but telling data point. It describes a market rebuilding on solid footing rather than snapping back on cheap credit, which is precisely the kind of recovery that rewards positioning early and rewards patience over speculation.
Source: Canadian Mortgage Trends
