Canada

Canadian Home Equity Borrowing Grinds To A Sudden Halt

Canadians are suddenly not so hot on borrowing their home equity these days. Office of the Superintendent of Financial Institutions (OSFI) filings show the balance of loans secured by home equity, like HELOCs, made a very small increase in August. Growth has been falling due to the personal loan segment seeing slow growth. Business debt secured by home equity is higher than last year, but has also slowed over the past few months. 

Debt Secured By Home Equity Up Only 0.58%

The total balance of loans secured by real estate inched higher for a third month, but remains below the peak. The balance outstanding was $305.17 billion in August, virtually flat from the month before with a 0.04% increase. Compared to the same month last year, this represents a 0.58% increase. That’s the lowest rate of annual growth since 2016, and it’s due almost entirely to personal loans drying up. 

Total Loans Secured With Residential Real Estate

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

Source: Regulatory Filings, Better Dwelling.

Personal Debt Secured By Homes Down 0.34%

The amount of personal loans secured against real estate is lower than last year. The balance hit $269.15 billion in August, up 0.21% from last year. The increase works out to a 0.34% decline from last year. This drop is a little smaller than the month before, but prior to that we haven’t seen a decline like this since 2014.

Personal Loans Secured With Residential Real Estate

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

Source: Regulatory Filings, Better Dwelling.

Business Debt Secured By Homes Rises 8%

Business loans secured against home equity is rising slowing, but is still higher than last year. The balance outstanding reached $36.06 billion in August, down 1.16% from last year. The decline brings the balance 8.03% higher than the same month last year. This number is a little more volatile. With the flood of small business loans programs, it’s not unexpected to see this number drop. 

Business Loans Secured With Residential Real Estate

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

Source: Regulatory Filings, Better Dwelling.

Deleveraging, at least in real terms, is a mixed sign. Elevated levels of household debt aren’t great to carry during a poor economic environment. On that level, it’s good to see households reducing their liabilities. Credit does drive consumption, on the other hand. Slowing home equity borrowing is going to mean less consumer spending, which can impact various segments. Especially new condo sales, which was a popular purchase to make with home equity.

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10 Comments

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  • Mtl_matt 2 months ago

    I wouldn’t worry, good things usually happen when credit bubbles stop growing.

    /s

  • SH 2 months ago

    I wonder what percentage of those Toronto shoebox condos were purchased using HELOCs from an existing property? Knowing the extent to which HELOCs played a role in the condo bubble will help us deduce the impact on condo sales moving forward should the HELOC credit impulse go into reverse.

  • Pepp 2 months ago

    Guys its the damn corrupt politicians that are using Canadian tax payer money to fatten the pockets of real estate speculators. We all know what the solution is, we need to tax people who own multiple residential properties. Force speculators to sell.

    • SH 2 months ago

      Well, take it up with Millennials. They put Trudeau in power – twice! – despite it being obvious that he puts foreign interests, particularly foreign RE buyers, ahead of Canadian interests.

      There will be no meaningful change until a government comes to power that rewards WORK rather than speculation.

      • Itchy Bear 1 month ago

        It was the Harper gov’t that first implemented the investment immigration scheme and other policies that exploded international money laundering in Canada; Harper privileged wealthy immigrants over skilled immigrants.
        Trudeau isn’t great, but he’s better.
        Don’t be like the people who saw the linear improvement in the US economy in Trump’s first 3 years from Obama’s whole 2 terms and thinks Trump is some kind of economic genius.
        Trudeau may have not done much to fix the problem, but it’s overhang from conservative policies that really created the issue.

        • Mike 1 month ago

          A better answer would probably be “its more complicated than just Trudeau”.
          The problem is with bringing Harper into the discussion it shows incompetence of the current government after 6 years.. ish… After all, they did promise they would do a better job… They wanted this.
          Making excuses for current governments when they’ve had 6 years doesn’t work. Why not just go back a few more years and blame Jean Chretien or Mike Harris? People do this all the time on board discussions.

        • SH 1 month ago

          What are you talking about? The Immigrant Investor Program pre-dated Harper and in fact he ENDED it in 2014 because it was found to have precisely zero net benefit to Canadian citizens. I don’t agree with everything Harper did but at least in this case he put Canadian interests first.

        • Jupiter 1 month ago

          To be fair both governments created this bubble. However its under the liberals that made housing completely unaffordable in Toronto and Vancouver.

  • Ashwin 1 month ago

    Framing this as a political issue is rather myopic IMHO. No political party in Canada will take on the combined might of Bay street, Financial institutions and the Real estate sector who are all making a killing in the process. May be different in an alternate universe where people are more concerned about actual issues rather than sophistry.

  • Oakville Man 1 month ago

    I would suspect that HELOC loans are slowing since banks are starting to not offer them. For example, MCAP has stopped HELOCs until COVID is over (I called them). Looks like Tangerine is the only bank offering them. So banks appear to be reducing risk which is smart. There is probably still an appetite for them, but no one can get them.

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