Canadians are burning through the real estate equity they’ve acquired. Altus Group, a real estate consulting firm, estimates over $17 billion in home equity was borrowed for renovations in 2017. Not all that surprising, or a shocking number if you’ve been following the debt binge. The interesting thing is the majority of these borrowers are older Canadians. Like, a quarter should be retired old… an odd time to take out a callable loan while the cost of servicing that debt is rising.
Home Equity Line of Credit (HELOC)
Regular readers can skip this, but for the rest of you need to know what a HELOC is. A home equity line of credit (HELOC) is a type of loan that’s secured by the equity in your home. Secured borrowing has a low interest rate, making it popular for financing large buys. The loans are typically variable rate, meaning interest rises and falls with market. The loan has become a hit with cash poor, house rich Boomers.
Canadians Borrowed $17 Billion of Home Equity To Renovate
Altus estimates a huge number of renovations are being paid for with borrowed equity. Over $17 billion in home equity was extracted for renovations in 2017 alone. For context, $259 billion in HELOC debt was outstanding last year, up $16 billion from the year before. Altus notes that not all of the home equity was extracted through HELOCs. Instead, many people refinance their mortgages, and increase their balances for renovations.
Canadian Renovation Spending
The dollar value spent on residential renovations, and Altus forecast.
Source: Altus Group. Better Dwelling.
A Quarter of These Borrowers Are Seniors
First-time buyers need to renovate a run down property, makes sense – right? Except these probably aren’t first-time buyers. Most of those borrowing HELOCs for renovations are actually older Canadians. The largest segment was between 50-64 years old, which represented 38% of the borrowers. People aged 65+ is also interesting, coming in at 25% of borrowers. That’s right, 63% of borrowers were 50+, and over a quarter should be retired.
Canadians Borrowing HELOCs For Renovations
The percent of Canadians that borrowed a HELOC for the purposes of a renovation in 2017.
Source: Altus Group, FIRM Survey. Better Dwelling.
The borrowing by itself isn’t an issue. The concentration, type of loan, and borrower in this combination might be. Over a third of all HELOC debt is in Toronto and Vancouver, two markets that saw a very quick rise in prices. HELOCs are demand loans, meaning banks can call them in if prices were to correct. These are older people in, or approaching, their fixed income years. Older Canadians are taking out callable loans, at peak valuations, with the cost of debt rising… while approaching retirement. All to renovate their homes. It’s probably nothing.
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