Canadian real estate owners just squeezed out a new record for borrowing home equity. Office of the Superintendent of Financial Institutions (OSFI) filings show the balance of loans secured by residential property reached a new record high in May. The record high came with smaller than typical monthly increase. However, the annual increase was the second largest for the month, in at least seven years of filings.
Loans Secured with Residential Property
Loans secured with residential property are when home equity is used to secure a loan. By securing a loan with home equity, lenders have something tangible to go after in default. In exchange, lenders give lower interest rates versus an unsecured loan. They’re great for consolidating high interest debt, but can get messy if borrowers aren’t careful. A more common name for these types of loans are home equity lines of credit (HELOC).
Lenders divide these loans into two segments – business and non-business purposes. Business loans secured by home equity is very common, and often the only way a small business could get a loan. Growth in this segment is often taken as a healthy sign. Non-business purposes is when you get to lever up, using your home as an ATM. Banks often pitch these as solutions for buying a second property or vacation home. When this segment rises, it’s often seen as a concerning sign. The Canadian government believes this could be obfuscating financial distress statistics. That is, people may be borrowing to pay their other bills.
Canadians Used Home Equity To Borrow Over $301 Billion
The total dollar value of residential property used to secure loans reached a new record high. The balance of loans hit $301.18 billion in May, up 0.08% from the month before. This represents an increase of 5.73% compared to the same month last year. The monthly increase was nearly microscopic, but did happen. It was the smallest for May since 2014. The annual increase still made a huge jump though. It was the second largest annual increase for May in at least seven years.
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 In Home Equity Is Being Used For Personal Loans
The vast majority of this credit is for “non-business purposes,” or personal loans – and it’s at an all-time high. Personal loans represented $268.56 billion of the balance in May, up 0.06% from a month before. The balance is now 4.58% higher than it was during the same month last year. Once again, this is a very small increase on a month-over-month basis. The annual increase is the third largest for the month of May, over the past 7 years. This segment of growth is still very high, but it’s slowing down.
Personal Loans Secured With Residential Real Estate
The total of personal loans, secured with residential real estate.
Source: Regulatory Filings, Better Dwelling.
Over $32 Billion In Home Equity Is Used For Business Loans
Home equity used to secure business loans made a huge leap in the past year. Business loans represented $32.63 billion of the balance in May, up 0.26% from a month before. This represents a 16.32% increase compared to the same month last year. This number has seen relatively minor movement over the past few months. It’s still under the peak 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 growth rate of loans secured by property have been somewhat mixed. On a monthly basis, the growth rate was much slower than usual. The annual number did show large growth however, with the second largest May print in years.
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Going to rip even higher over in June. Fourth biggest June for housing completions. A lot of home equity is being used to fuel the move-in payment and taxes on new construction. Bank of mom and dad are seeing the lost credit growth.
House prices should be falling and I shed not a tear for the Boomers who have became overnight millionaires selling their moldy bungalows for extreme profits, while they join extreme groups and tell those same buyers to return to their homelands.
As much as I think a correction is required, I worry about everyone coming to the realization that they need to tap out at the same time. Once your assets are not desirable or market is flooded, what does one do?
they get out as best as they can, shirt or no shirt.
right now – in the *up-tick – houses that were listed a year ago are finally selling for 70% of the original list price (but still for a significant profit, aka margin). I think the bottom of the market has yet to be seen.
The price dial has been set back to 2010 but it will take some time (and truly painful desperation) to get there.
It would be interesting to see the composition of the credit lent to the society by the banks. Whether it is more in business or more in mortgage lending? if mortgage lending > business, then definitely bank is responsible for the rise in the price of the house. Easy money for the banks to reap the reward where business fails most of the time. We all know how banks lent easily to the people prior to 2008 in USA that default was inevitable.