Less Canadians are putting up their homes for business loans, and more are doing it for personal ones. Filings with The Office of the Superintendent of Financial Institutions (OSFI) show loans secured against residential property showed moderate growth in April. The loans, such as HELOCs, showed growth almost exclusively for personal consumption. Meanwhile, the dollar volume of business loans secured by a home has plummeted.
Canadians Secured Over $279 Billion Worth of Loans With Their Homes
The total of loans secured against residential real estate actually saw growth taper. The outstanding balance at banks reached $279.7 billion, up $12.46 billion from the year before. The annual gain works out to 4.66% higher, the lowest level of annual growth since January 2017. The tapering growth is due to a decline of loans for business purposes, since personal loans are still booming.
Total Loans Secured With Residential Real Estate
The total of personal and business loans, secured with residential real estate.
Source: Regulatory Filings, Better Dwelling.
Business Loans Secured By Homes Are Down Over 10%
Business loans secured by residential real estate made a huge decline. Filings show $25.02 billion in business loans were secured by homes in April, a 22.98% decline from the month before. The steep drop brings the balance 10.88% lower than the same month last year. Deleveraging in this segment isn’t as encouraging as you would think. Business loans are typically calculated risk, taken out to generate more income. A decline in any form of business lending is often seen as a decline in confidence in the economy.
Business Loans Secured With Residential Real Estate
The total of business loans, secured with residential real estate.
Source: Regulatory Filings, Better Dwelling.
Personal Loans Against Real Estate Rises Over 6%
Personal loans secured by residential real estate reached a new all-time high. The balance of personal loans secured by homes reached $254.75 billion, up 1.03% from the month before. Compared to the same month last year, that brings the balance 6.49% higher. Since personal loans are typically for consumption, growth isn’t all that great. One exception is debt experts in Ontario are noting that these types of loans are being used to delay defaulting on a home. It’s not a great exception, but it’s an exception.
Personal Loans Secured With Residential Real Estate
The total of personal loans, secured with residential real estate.
Source: Regulatory Filings, Better Dwelling.
These loan segments are moving in the wrong direction. The expansion of business loans is generally a good sign, and putting up your home as security is normal. Unfortunately this segment is on the decline. Meanwhile personal loans are still expanding at a consistent rate, while household debt levels are near record highs.
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Basically lifestyle inflation. People buy new homes, then need to decorate it. If they’re buying more homes without more income, they have to withdraw equity. Same problem we had in the US. It doesn’t end well in case you missed it.
But house prices are going to bounce back in H2 and continue growing in the mid-single digits for the next 25 years outside of the boom years where we print 10-15% gains,maybe even 20%. Interest rates will not go up again because doing so will tank our economy with many experts thinking rates will come down to near historic lows by next year…. Wait is this April 2017 or June 2018? Oh the latter…my bad…we are screwed. And a special shout out to the trolls and revitionists; it must suck waking up to hell every morning. Here’s the rub:we’re only at the gates…. Tick tock. BD4L.
Trader Jim, you called $0.75. Shed a penny in two days if I believe…only going to get worse if Poloz holds off in July. Have to see. Tick tock.
It seems likely that at least one reason for the declining business loan number is a decline in confidence on the part of non-traditional lenders. They are lending against the last equity in a property, and the softness in property values has to make them concerned that this last equity may be disappearing.
Next step: those same lenders refusing to renew existing loans, or even demanding early repayment, as property values continue to weaken. This would force sales, putting further downward pressure on prices.
Business loans are viewed as economic drivers since, in theory, they are approved based on a business plan and the goal is to make bank and pay off the loan. These would be less risky vs lending to someone so they can prove to their wife once and for all they are a winner because you know, having granite countertops, 4000 sqft and a sauna = winning. His ‘business plan’ is ‘prices always go up so I’ll just sell in a couple of years, see you sister’s brother isn’t the genius you think he is damn it!’. If your theory is correct you’re suggesting money is pouring into higher risk areas that have lower confidence than other areas, like business lending. I tend to disagree. Agree that Canada will burn once everyone re-ups over the next 6-18 months…have friends who are renewing next year and currently at just over 2%…they are going to be borrowing in the ‘fucked %’ range come next fall. Tick tock. BD4L.
The debt slaves are truly screwed now, desperately grasping for more debt to cover their living costs, and some have figured out they can’t sell their home for what they could not long ago. The trap was set by the Bank of Canada and now it is taking its prey.
What’s worse is the media/politician/Agents/family/friends are all in a feedback loop that prices can’t come down, rates can’t go up and just ‘keep calm and chive on’. Housing will bounce back and the $XX,XXX you’ve lost propping up a losing asset (or paying into a HELOC you were going to discharge) will be made up by the asset appreciation PLUS you’ll end up even better than before within a year. The new narrative is that prices are going to rebound because of a lack of supply…everyone is in shock and believing those noted above. Sure, there could be a pop in Q3 due to this…If you’re old and need the capital gains to offset retirement I can understand why some sellers are holding tight but, as history has shown, prices will take years to come back and they will be in a worse off position next year. Been watching a property in the Forks of the Credit hold fast and now everything around them is cheaper and offers more; they are so stuck it is sad as they are retirees and ‘know their house is worth over $1M’, moved onto another broker after 90+ DOM…it will not end well. Tick tock. BD4L.
Blue rant: Our dollar is poised to get whacked over the next 6-18 months. Whether it is a full out ‘trade war’ or just trade skirmishes, it doesn’t really matter. We are an export economy and our exports are getting hit all over the place (. Less exports = less demand for the loonie. We have already shed $0.01 in a matter of days and we have not made it back at all.
If our exports get hit we need to ensure we bring in money elsewhere via investment. Bond yields dictate large capital investments (financed through debt generally) and the debt market (government, corp). Bond yields are directly tied to Central bank rates. If yields go down we are less desirable in terms of investment.
And tack on the fact that we’ll need some padding to help our economy after the 2019-2020 recession and I don’t see any environment where we don’t see 4-6 rates increases in the next 6-12 months.
But what if everything works out and we’re still humming along…inflation bitches, inflation. Full employment. Wage growth via government intervention. Dollar going down (no rate increases right?).
Water is wet. My name is Blue. Rates hikes are coming. Will you be screwed?
Hilarious.. you keep arguing for massive rate hikes and predicting shit is going to hit the fan leaving the economy blown to bits. Do you even know how interest rate decisions are made?
I think Blue mentioned bond yields so I’m guessing he does. Interest rates are not really decisions either.
3 posts in a row? Blue, you are pathetic (future blue).
lol that’s enough Blue for everyone for one day.
Are you shorting any stock in anticipation for the pain that is coming to the North this fall?
What do you think about shorting RMAX (ReMax Holdings NYSE)???
Personally I know the crash is coming but I don’t think I have the nuts to short anything. Was wonderin if anyone had any input in such matters???
If remax operates in the US you’d be a fool to short it.
@LL, your interest rate forecast is horrible. I will bet you that there will be three interest rate increases before the end of the year. Currently, we are TWO (25 basis points) interest rate hikes behind the US. They are planning on two more before the end of year. No secret there. https://mobile.nytimes.com/2018/06/13/us/politics/federal-reserve-raises-interest-rates.html
If Canada does three, 25 basis point, hikes we will still be one behind the US. We are not a large enough economy to not follow the US. Research shows that US and Canada are at 30+ year unemployment lows, minimum wage increased, what other indicators do you want to support a declining economy (Canada’s US 2008 recession 2.0) with rising interest rates? Perfect storm for there to be blood in the streets and a dead economy for a decade. How much you wanna bet?
I have had a PCS list going for my region for a couple years.
Today I saw 10 price reductions on a list of 40.
In the past two years, I have not seen a single one on that list. There definitely has been a shift.
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