Canada

Canadian HELOC Borrowing Was Grinding To A Halt Before The COVID-19 Crisis

Canadian homeowners were buckling down on the spending ahead of the pandemic. Office of the Superintendent of Financial Institutions (OSFI) data shows the balance of loans secured by residential real estate, such as HELOCs, made a tiny move in January. The movement, the weakest in over half a decade, saw the balance fall from all-time highs.

Canadians Secured Over $303 Billion In Debt With Residential Real Estate

The balance of loans secured by residential real estate actually fell in the month. The credit outstanding stood at $303.08 billion in January, down 0.31% from the month before. Compared to the same month last year, this is a 1.82% increase. Yes, negative growth for the month, and annual growth is negative in real terms. The point worth noting in this report is, households had already begun to cool on borrowing against their home prior to the COVID-19 outbreak.

Total Loans Secured With Residential Real Estate

The total of personal and business loans, secured with residential real estate.

Source: Regulatory Filings, Better Dwelling.

The Balance of Personal Loans Secured By Homes Increased Less Than 1%

The vast majority of loans secured by residential real estate is for personal loans, such as HELOCs. The balance of these loans hit $267.66 billion in January, down 0.41% from a month before. Compared to the same month last year, this is a 0.65% increase. This is a slight acceleration for the month, but still very low annual growth. The last time a January printed such low growth over a 12-month period was in 2014.

Personal Loans Secured With Residential Real Estate

The total of personal loans, secured with residential real estate.

Source: Regulatory Filings, Better Dwelling.

Businesses Borrowed Over $35 Billion Secured By Homes

Business loans secured by residential property are growing at a healthy rate. The outstanding balance for the segment reached $35.42 billion in January, up 0.42% from the month before. Compared to last year, this is a whopping 11.59% increase. Not quite a record high, but it’s within spitting distance.

Business Loans Secured With Residential Real Estate

The total of business loans, secured with residential real estate.

Source: Regulatory Filings, Better Dwelling.

We’ve been discussing a slowdown in loans secured by real estate for a few months now. Considering HELOCs have been a significant driver of consumer spending, the decline was going to be noticeable. Note this slowdown occurred before Canadians considered COVID-19 an issue. In fact, this was occurring while real estate prices pushed new highs and sales were booming. Spending powered by Canadian real estate was already becoming weaker.

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6 Comments

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  • Marc 2 months ago

    Would be surprised to not see people draw down on their HELOCs going into the pandemic layoffs.

    • Joseph 2 months ago

      Marc, the interesting part?

      What if those with equity in their homes have already tapped their Heloc loans well before this virus started spreading? Nothing left to tap.

      • Trevor 2 months ago

        Eh what equity? We’re in a deflationary recession possibly a depression, these home equity products are going to disappear otherwise the banks are going to get killed by defaults.

  • straw walker 2 months ago

    In Vancouver many now are talking that they’re having trouble looking forward in April with those $80,000 truck lease payments, and those got to have $1.6 million dollar house payments..
    And those heloc loans to maintain their lifestyles.
    Nearly 50% of home owners own a 2nd home being paid for by interest only heloc loans..

    The financial mess from Wuhan virus has just begun and Cdns are already in big trouble..
    Lots of interesting times ahead

    • Stone 2 months ago

      The lifestyles you mentioned are not financially resilient lifestyles, don’t you agree? COVID (not Wuhan to me anyway) is playing just a trigger to expose the debt risks that have been accumulating for over 10 years among Cdns’ spending habits. I don’t know if it is interesting to see when bubble bursts and neighbors have to sell their houses for cheap.

      • Mix 2 months ago

        It’s gonna be Incredibly interesting to see just how badly over leveraged people are ….. and how far home prices will fall.

        After all real estate in Toronto is the new gold! Lol

        I have lived to see my home price triple in the last 12 years.

        I wouldn’t be surprised if it falls 40 percent or more.

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