Canada

Canadian HELOC Debt Pushes Past The $300 Billion Mark For The First-Time

Canadian real estate owners reached a new debt milestone. Office of the Superintendent of Financial Institutions (OSFI) filings show the balance of loans secured by residential real estate reached a new high in April. The new high is the first-time in history the balance has passed the $300 billion mark.

Loans Secured By Residential Real Estate

Loans secured by residential real estate are loans where equity is pledged as collateral. By pledging the home equity, the borrower gets a lower interest rate. In exchange, the lender has something to take away if you default. The most common form of these loans are home equity lines of credit (HELOC). The uses of this debt ranges from securing a business loan, to buying a second condo (banks encourage this).

Over the past 15 years, HELOC debt has become the second largest segment of debt – after mortgages. By itself, the loans aren’t good or bad, they’re just leverage. However, the surge in borrowing after real estate values soared, can leave borrowers in a precarious situation. The government has become increasingly worried about the issue. If you’re wondering why Canadians have so much debt, this is one of the reasons.

Canadians Owe Over $300 Billion In Loans Secured By Real Estate

The balance of loans secured by residential real estate reached a new record high. The outstanding debt reached  $300.93 billion in April, up 0.44% from a month before. The debt is 7.56% higher than it was the same month last year. This is a record, the first-time it has passed $300 billion, and the largest 12 month increase for April since 2017. Other than April 2017, no other 12 month increase over the past seven years comes close.

Total Loans Secured With Residential Real Estate

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

Source: Regulatory Filings, Better Dwelling.

Over $268 Billion of That Debt Is Personal Loans

Breaking that down, the vast majority of it is consumer debt for personal purposes. The balance in this segment represented $268.38 billion in April, up 0.49% from the month before. The debt is now 5.35% higher than it was during the same month last year. Huge growth, but much slower than it has been over the past couple of years. The balance is back to a new record high, after taking a brief dip.

Personal Loans Secured With Residential Real Estate

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

Source: Regulatory Filings, Better Dwelling.

Over $30 Billion In Real Estate Was Used To Secure Business Loans

Business loans secured by real estate moved lower, but were still much higher than last year. The outstanding balance reached $32.54 billion in April, down 0.02% from the month before. Even though it made a slight decline, April was still a massive 30.02% higher than the same month last year. This segment of debt hasn’t returned to the all-time high reached in 2017.

Business Loans Secured With Residential Real Estate

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

Source: Regulatory Filings, Better Dwelling.

The balance of loans secured by residential real estate reached a milestone in April. This is the very first time Canadians held over $300 billion in loans secured by their home equity. However, this segment does still appear to be seeing growth decelerate. This is clearest in the largest segment, personal debt – which is at a 24 month low for annual growth.

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21 Comments

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  • Yashua Levi 6 months ago

    Right when real estate sales start to rise again. Anyone else get the feeling the bank of mom and dad is has been getting a lot of new business?

    • Mortgage Guy 6 months ago

      Don’t forget April is always a big month for condo completions. $3k in Toronto for that month alone. Time to withdraw 5% to pay for that condo pre-sale you bought while dreaming of being a landlord.

      • Ethan Wu 6 months ago

        The number one use for a HELOC is to buy more property. This would make a lot of sense actually. Slow down in the winter, ramp up during completions.

        • Lessdanadalla 6 months ago

          That’s great genius … if that’s the case we’re pretty much f****d.

          • Bluetheimpala 6 months ago

            You mean borrowing against and asset class to buy more of the same asset isn’t a good idea? But it always goes up and the fed is going to lower rates, and immigration and wage growth. No global slowdown coming. Oh wait…tock.BD4L.

        • Mr.P 6 months ago

          Hi Ethan,

          do you have any data on that? I am just curious how much (what percentage) of HELOCs is used on property…might be very interesting.

        • Average Man 6 months ago

          Jesus Christ. Are you serious? I thought that was a rumour, or illegal or something? Fuck me. It’s all gonna go Mad Max.

  • Tenzin 6 months ago

    hi there, it would be great if the graph are shown in relative with other oecd nations.

    • Ma 6 months ago

      Wouldn’t really help, since other OECD countries don’t have as high of debt to income ratios as we do in Canada.

      The issue is more so what we saw in the US in 2008. Home prices surged, people thought they were investment geniuses and used their home equity to splurge or invest in the stock market, then during the next recession the wiped out equity and HELOC debt meant most households that made a ton of money were no better off than they were before the surge in prices.

  • Frost 6 months ago

    And that is why we have $2000 dollar Iphones and $25K Corolla’s today. People borrowing money like the world is about to end. Wonder how much impact HELOC has on our economy and what will happen if banks stop issuing HELOC’s on more and more properties that do not meet the 20% ownership of the “estimated” home value. Than how will people afford their flashy SUV’s and latest gadgets?

    • FOMO 6 months ago

      or they can use the money to invest in the Stock Market ? not all for consumption — or maybe for Home Renovations that add value to the home ?

      • Bluetheimpala 6 months ago

        Using leverage buy financial assets does work, if you’re a pro and now include the 4% HELOC rate into your returns and remember that requires after tax dollars, ever wonder why traders don’t leverage a post tax asset but instead use vehicles designed for financial leverage? Also, if i overpay for something spit shining it with a nee extension just makes me a moron because in a correction i wipe out equity that the debt is tied to so i can’t be made whole through liquidation. But yeah, i guess you’re right.Tock. BD4L.

    • Paul 6 months ago

      Frost,

      Is that when the bank calls in the loan? When the balance on the heloc exceeds the ownership in the home?

      What if entire segments were called in simultaneously. They would target the ones who they think they could recoup the losses from? Abandon the lower segment?

  • Ming 6 months ago

    If you’re a non-resident owner, time to borrow as much as possible and leave. The Chinese debt bomb is going off right now.

    https://twitter.com/Jkylebass/status/1141715274879533056

    • Bluetheimpala 6 months ago

      One of the smartest posts in a while. Where have you been all my life. The sino forest is about to burn. Their debt is the laughing stock of the world. Baby Xi will never sit at the big boys table just bumble around like russia. Lol.BD4L.

  • FOMO 6 months ago

    HELOC’s provide cheap capital buy High Quality Dividend Paying Stocks, like

    BCE 5.2% dividend
    CIBC 5.3%
    Telus 4.7%
    A&W 4.2%
    Boston Pizza 7.7%
    Chorus Aviation 6.0%
    TC Pipeline 4.5%
    Verizon 4.2%
    AT&T 6.3%

    Why wouldn’t you borrow cheap money — and it’s TAX Deductible !! so the effective rate is even lower.

    etc…

    • MH 6 months ago

      So you will be raking in a whooping ~1.5% return on your genius carry trade accepting the risk of going red both in home equity and in stocks? Canadian RE visionaries will never cease to amaze me…

      Also, and I know it sounds like fiction to you, dividends routinely get cut in recessions and when it happens dividend stocks get punished severely.

  • SUMSKILLZ 6 months ago

    Working class neighbour tells my wife and I…”we’re redoing the kitchen, its five years old now.” I’m thinking WTF???! Then the neighbour goes on to say, “next year we’re replacing the old 2012 windows and doors because black frames are the new style so the white windows and doors have to go….the soffits and gutters need to be changed to match….maybe the verandah railings too…we’ll need to repaint inside to match the style of the black frames”…so I sarcastically chime in, “are you going to replace the floors too?” and she says, “humm, we have not thought about that, but it makes sense…” I try hard not to laugh.

    HGTV/Pinterest is really messing with people’s heads.

    • Neo 6 months ago

      It’s funny. All you see now in the new subdivisions is black frame windows. Guess what, in 5 years those subdivisions will look dated by those same windows. It’s like those gaudy gold cabinet hardware. Things are called treny for a reason. They don’t last the test of time. In my mature hood all the new custom build in fills have an exterior that is grey in 95% of them. Everyone is like zombies out there.

  • vnm 6 months ago

    lol, time to dip into a HELOC for a pair of imitation stone outdoor speakers,
    and rock the block with Paint it Black.

    I look inside myself and see my heart is black
    I see my red door I must have it painted black
    Maybe then I’ll fade away and not have to face the facts
    It’s not easy facin’ up, when your whole world is black

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