Canada

Canadian HELOC Debt Makes Second Biggest Jump For The Month In 7 Years

Phew! Canadians are over the possibility of home prices dropping, and are back to using their homes as ATMs. Office of the Superintendent of Financial Institutions (OSFI) filings show massive growth for home equity lines of credit in July. The annual pace of growth was the second highest for the month in the past seven years of bank filings. The increase comes at a time when the surrounding environment is starting to look not so rosy.

Loans Secured By Residential Real Estate

Loans secured by residential real estate are when home equity is used as loan security. That is, in the event a borrower defaults, the lender can recoup their losses through the borrower’s home. Why would a borrower do that? Easy – the interest rate is much lower than an unsecured loan. Additionally, there’s fewer barriers to obtaining a loan when it’s secured by an asset. Most often, these loans are called home equity lines of credit (HELOC), but they might be a little different.

Canadians Owe Over $303 Billion In HELOC Debt

Canadians sent the balance of loans secured by residential real estate soaring. Filings show the balance of loans hit $303.16 billion in July, up $930 million (0.31%) from the month before. The balance is now 4.65% higher than the same month last year. The rate of growth is huge, as is the record balance reached.

Total Loans Secured With Residential Real Estate

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

Source: Regulatory Filings, Better Dwelling.

Things were slowing down for a while, but the rate of growth in this segment is back to accelerating. July’s 4.65% annual growth is up 63.15%, when compared to the same month last year. The annual pace of growth for the total is the second highest for the month of July, over the past 7 years of filings. Canadians briefly cooled their borrowing when home price increases stalled. However, they went right back to tapping their homes when a little growth returned.

Over $269 Billion of The Debt Is Personal Loans

The bulk of loans secured by residential real estate is for personal use. Over $269.66 billion of the total was for this segment in July, up $600 million (0.22%) from the month before. If compared to the same month last year, the balance is up 3.38% from last year. This is a new balance for personal loans, and the second largest annual growth for July in seven years.

Personal Loans Secured With Residential Real Estate

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

Source: Regulatory Filings, Better Dwelling.

The growth in this segment has been a recent concern for regulators. HELOCs are great for loan consolidation, and emergency cash. However, Canadians are using them to tap their home’s rising values for consumption. It’s become so bad, HELOC driven consumption now has a material impact on GDP.

Business Loans Secured By Homes Are Seeing Double Digit Growth

The remaining amount of debt is for business purposes. The balance of loans reached $33.50 billion in July, up $0.33 billion (0.99%) from the month before. This represents an increase of 16.16%, when compared to the same month last year. The balance is still under the all-time high reached in July 2017. However, the segment is still growing very, very quickly.

Business Loans Secured With Residential Real Estate

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

Source: Regulatory Filings, Better Dwelling.

Business loans are growing at a very fast rate, which is often seen as a positive. Typically rising business loans mean owners are confident in the economy. So confident, they’re willing to borrow for a likely expansion. However, business loans are rising at the same time as business insolvencies. The timing of this could mean owners are scrambling for operating cash. It may not be the boom time sign it typically would be.

Rising home equity loans isn’t a problem by itself, but it can be as the economy becomes addicted to the cash. Higher levels of debt leave households more vulnerable to financial shock. This issue is compounded if a material part of GDP comes from extracting rising home values.

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9 Comments

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  • Li Gongfu 2 months ago

    Anyone else noticing these jump higher as completions and pre-sale units also rise? Bank of mom and dad are busy.

  • Marc 2 months ago

    Banks have to make this segment grow when mortgage volumes decline. You probably can’t even walk into a big bank right now, and not be offered one.

  • SUMSKILLZ 2 months ago

    I saw an open house with a line up of families this weekend. I see lots of new listings in my hood. They are all getting viewings again. The signal folks will see is, “party’s back on!” Alright, Alright, Alright…as Matthew McConaughey often says. Whether you want to sell, move up or HELOC.

    Of course, I’m not buying it. Folks at the dog park are regularly chatting about job loss anxiety this fall. Last time I heard that was during the 90’s. Keep in mind there are a good range of incomes and ages at the dog park. We’re a diverse bunch. It gives me pause.

    • John 2 months ago

      Ha, break from seriousness… I need to recognize your solid pun at the end.

      Thank you for the smile!

  • Santajet Fabola 2 months ago

    Smart move! They’re getting their money out now before prices fall. If the market does collapse the government will have to forgive all the loans.

    • Smaug 2 months ago

      …the government will have to forgive all the loans

      And when has that ever happened? Any example less than a century old would be appreciated. Thanks.

  • Grandv!ew 2 months ago

    Can this country elect prime minister who is going to have guts to stand up and tell the nation:

    All borrowed money WILL HAVE TO BE PAID BACK with interest.

    • John 2 months ago

      Which of the available candidates would that be? From what I’ve seen, they all want to throw more fuel on the fire.

      As a millennial, I’m pissed off at my available voting options. Everyone is selling the idea of more debt for longer as ‘affordable’. Well you know what… a Model S P90D financed over 8 years has payments I can make, but it’s still not ‘affordable’. A Toyota Corolla is affordable.

      Our housing doesn’t have a Corolla though. It starts at the Model S and rises from there.

  • GLM 2 months ago

    this country is so screwed

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