Canada

Canadian Households Have Begun Deleveraging Loans Secured By Real Estate

Canadians using their homes at an ATM has slowed down during the pandemic. Office of the Superintendent of Financial Institutions (OSFI) filings show the balance of loans secured by residential real estate saw growth disappear in June. The slow down was even larger in the personal loan segment, which began declining for the first time in over six years.

Loans Secured By Residential Real Estate

Loans secured by residential real estate are debts secured by home equity. By securing debt, a lender has something to collect in the event of a default, which means they have little to lose. In exchange, lenders generally charge lower interest than they would on unsecured debt. The majority of the numbers we’ll look at are home equity lines of credit (HELOC), however banks also bulk home equity loans together as well.

Canadians Borrowed Over $304 Billion In Debt Secured By Home Equity

The total of loans secured by residential real estate is slipping from all-time highs. The total outstanding balance is $304.95 billion in June, down 0.27% from the month before. The drop works out to a 0.90% decline from the same month last year. June marks the third consecutive monthly decline, and the lowest 12-month growth since 2016. Breaking this down, personal loans are where the majority of the weakness is.

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 Loans Secured By Home Equity Falls

Personal loans secured by residential real estate represented the majority of the debt. The balance of personal loans reached $268.50 billion in June, down 0.14% from the month before. The drop works out to a 0.21% decline from the same month last year. Now that doesn’t seem that big, but this is the first time since June 2014 the 12-month growth has turned negative. Considering how much of a role this segment played in consumption, it’s a larger issue than it looks.

Personal Loans Secured With Residential Real Estate

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

Source: Regulatory Filings, Better Dwelling.

Canadian Businesses Owe $36 Billion In Debt Secured By Real Estate

Business loans secured by residential real estate are a little more volatile. The outstanding balance of business loans fell to $36.46 billion in June, down 1.18% from the month before. The drop works out to a 9.91% increase compared to the same month last year. This kind of growth was more recently seen in March 2019.

Business Loans Secured With Residential Real Estate

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

Source: Regulatory Filings, Better Dwelling.

There’s some mixed messages on whether this is a good thing, and it depends on who you are. Generally lower levels of debt mean households are more resilient to economic shock. In this case, seeing households paying off debt can be a good thing. At the same time, a significant amount of consumption is driven by these types of loans. The sudden absence of this spending can make it more difficult for the economy to recover.

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6 Comments

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  • Marc 4 weeks ago

    That would be why condo pre-sales are in the crapper.

  • Fight Back 4 weeks ago

    Canada is a failed state where real estate corruption have made housing unaffordable in large Canadian cities. We need to hold these criminals accountable for leveraging Canadian’s future to fund real estate speculator profit.

    Canadian national housing strategy is a crime.

  • Simon 4 weeks ago

    A contraction of credit also means less money circulating through the economy. This is bank-made money getting destroyed. It’s a double hit when people aren’t spending money on goods and paying down debt.

    • C.D.R. 4 weeks ago

      @Simon, it was already going that way when the majority of household income was directed to housing via over-sized mortgages or rents in major metro cities like Toronto (GTA), Vancouver (GVA), Montreal(GMA).

      If prices were 1/2 where they’re currently (what their true value is), we wouldn’t be a country of house poor citizens.
      Personal consumption spending would be healthier based on income, and not borrowed debt leveraged to another debt, which still has to be repaid.

    • Sam 4 weeks ago

      That would be true in normal situations, but the government is printing money to the tune of $340B… which might be why these personal loans are going down in first place

  • derek martin 4 weeks ago

    I have a HELOC on a property I live in in Montreal. Fluctuates between $90,000 and $100,000 in debt. I have no money owed on the mortgage, it is “paid off” so the HELOC is the only debt on the property.. But obviously I can’t discharge the mortgage because I owe money on the HELOC. The thing is, the interest on my HELOC is 3.45%. I would like to lower that to reflect the current rates which should be a least 1% lower. The property is worth around $600,000 and I don’t want to sell it. Is there a way to do this? Thanks.

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