Canadian real estate owners are wasting no time burning though that new equity. Canada Mortgage and Housing Corporation (CMHC), using Equifax data, crunched the number HELOC borrowers across Canada. The agency found two-thirds of borrowers have used their HELOCs, and owe an average of nearly six-figures.
Tapped Vs. Untapped HELOC Debt
Home equity line of credit (HELOC) debt is measured two ways, tapped and untapped. Tapped HELOC debt refers to the amount we normally hear about, the outstanding debt. This is just the amount of home equity that has been drawn, plus accumulated interest. Untapped HELOC debt is the amount of home equity your lender has qualified you to borrow. If they were credit cards, tapped is your balance, and untapped is your credit limit.
The vast majority of Canadian debt is attached to real estate, and only the tapped number is used. Mortgage debt is 66% of total debt, and tapped HELOCs account for another 11% of household debt. CMHC analysts note that if all debt is tapped, it would account for “nearly a quarter” of all household debt. The good news is HELOCs are great for emergencies, and 3.1 million homes have access to one in Canada. The bad news is people are tapping their home equity when home prices and the economy have been booming. A correction in home prices or a slow down in the economy could leave borrowers with less equity than they thought. Hopefully they’re doing something constructive with that debt.
Over 66% of HELOCs In Canada Have Been Used
Just over two-thirds of Canadians with HELOCs have tapped them for use. An average of 66.3% of HELOC borrowers have drawn on their HELOC across Canada, and have an average balance of $64,534. That balance rises significantly in BC to $78,203, where 63.2% of borrowers have tapped their equity. Ontario is right in the middle of stats with 64.6% of borrowers tapping their HELOC, with an average balance of $60,884. The average can actually grow quite a bit from here.
Average Canadian HELOC Balance
The average balance owed on HELOC debt in Canada, by region and in Canadian dollars.
Source: CMHC, Equifax. Better Dwelling.
Room To Grow More HELOC Debt
The balance of HELOC debt is at all-time highs, but there’s still plenty of equity to extract according to the CMHC. The average balance in Canada was $64,534 in Q1 2018, but the average limit that could be borrowed was $167,867. The British Columbia had the largest average limit at $212,208, compared to an average balance of $78,203. Ontario had the smallest ratio of utilization, with an average limit of $172,448, and an average balance of $78,203.
Average Canadian HELOC Balance and Limit
The average balance owed on HELOC debt in Canada, and the maximum limit available. In Canadian dollars.
Source: CMHC, Equifax. Better Dwelling.
Tapped HELOCs Owe An Average of Over $97,000
The average balance is even higher when zero dollar balances are removed. HELOC borrowers owe an average of $97,347 across Canada, if we only count those that have extracted equity. BC has the highest average tapped balance at $123,797 in Q1 2018. Ontario’s average tapped balance hit $94,198.
Average Canadian HELOC Balance, Excluding Untapped
The average balance owed on HELOC debt in Canada, including zero-balances vs excluding zero balances. In Canadian dollars.
Source: CMHC, Equifax. Better Dwelling.
The most important takeaway is the size and concentration of HELOC debt. Only two-thirds of HELOC borrowers have drawn cash, concentrating the debt. That balance can get even higher, since the average is just a fraction of the total credit extended.
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That gap between potential can close quickly, especially in Ontario. Just a 10% correction would squeeze those shut.
HELOCs are also callable, so any more and a forced sale is possible.
It would be helpful to see distribution of those that borrowed. I imagine most peoplehave very small balances, while the majority of debt is concentrated.
You are pretty close.
It’s 8.6% for Canada, 7.8% for BC and 7.2% for Ontario. (for average existing HELOC holder)
Are there people dumb enough to max out their HELOC?
Hi Jon,
There sure are folks out there more than eager to max out their HELOC. In fact there are so many that there’s a name for it:
“The Smith Maneuver”
I’m not sure if this HELOC would be registered as personal use, which we’re seeing become a greater % of HELOC debt.
Only the dumbest financial advisors in the planet would recommend the Smith Manouvre while rates are climbing. The risk added leverage makes it a worse decision than using your HELOC to buy a syndicated mortgage or for private lending (two common cases I see promoted more often).
Even more important is the extension of consumer spending as a result of HELOC debt. The economy expanded to accommodate excess spending, which needs to correct. Would love to see a ballpark number on how much value was extended.
Lifestyle inflation. Same problem we saw in the US. Is everyone driving around in a fancy car, while wages are low in contrast? That’s HELOC magic during a bubble. Things feel so good, they can’t correct. 😎
Tick tock………… poor one out for Blue
*pour
I don’t understand that move ……. a bear that turned into a hamburger, why would someone buy a home now is beyond me. (Can’t be Fomo! ) Maybe he wanted to buy at a premium before the prices decline, maybe he was worried that Toronto real estate market would suffer a downturn so he wanted to buy while prices are still high.
Can you think of any?
homes around me in Brampton are selling for 1.1 mill but only rents for 3100, fundamentals don’t make sense, only move that make sense now is to sell and rent back the exact home for half of what it cost to carry it.
With Nafta a done deal rates are headed up for October, god help those with 500k mortgages.
Could be a family thing. Know he had at least one young kid, maybe his wife was pressing him for more space/ security. Also, we don’t know where he bought and you can find properties out there that are selling for 20% below peak. Even if your are expecting a 40% drop overall, at least he’s getting in half way down. Also depending on the financing he needs, maybe he is trying to get a head of further rate increases. Either way, I doubt Blue would put himself in a situation where he would be forced to liquidate for a loss.
I sold my house in early April 2017 to play the renting game. Very confident in my position and strategy, however I don’t live with my partner or have any outside pressures on me. I do not having to worry much about financing conditions and I also am undecided as to whether or not I want to be in Toronto long term.
That being said, if I decide that Toronto is the place for me. I will not try and time the bottom. I would jump back in as soon as 1 of a) annual capital loss < annual rental payments or b) I could purchase a property for 30% down and be cash flow positive if I rented it out happen.
My wife and I did roughly the same, where we sold (much earlier than you though) and put it all into market assets, which in turn gained a tremendous amount more than if we would have kept the place. We decided to rent until we see where things are going, but we’ll have our first child in a few months and so will likely buy something between June-October next year even though we’ll likely be catching a falling knife.
We personally look at real estate the same as a car purchase, it’s just something that we want to have for long term stability where kids can stay at the same school, have the same friends, etc. Even with the massive climb in house prices over the last 10 years those returns are absolute garbage compare to market assets, which are our actual investments.
So possibly Blue did the same.
“We personally look at real estate the same as a car purchase” We agree and think the same. Not the best way to invest at the moment where we live but a useful item that has value to us. It can make us money but we want it more for it’s usefulness to our family than as an investment.
Owe the debt in one year,but need ten years to pay back.
The sentiment of HELOCs being like fairy dust is quite widespread. They’re not just for buying stuff…they can be used to take time off work. My cousins look at me like I’m crazy, because I work each and every year…they certainly don’t because their “money never sleeps”, or something like that.
I wonder how many people fell in this type of bank trap?
Ex: Richmond Hill, Single Detached (Average prices listed)
1. Buy with 20% down (300K) a 1.5M$ single detached in August 2016
2. You get a 150K HELOC in April 2017 when home is at peak of 1.88M$. Feeling rich and dumb you blow it all!
3. Your home is now worth 1.32$M in August 2018.
Conclusion: Home lost 180K in 2 years + 150K HELOC to pay back. You are under!
I doubt very many, because the income required for a 1.2M mortgage is extremely unrealistic for majority of people.
People who are buying at 1.5M have been in the market a long time, and already made a killing.
And who do they sell to?
Those who sold out of the GTA have made a big mistake. This cookie is not going to crumble. 2008 worst recession, basically prices barely budged. Unfair housing plan, foreign buyers tax, raising Interest rates , stress test, the list goes on and still it has not crashed.
Bears who use April 2017 as peek are wrong, because thousands of transactions didn’t close and TREB doesn’t revise numbers. So market went up about 100K / month that time, you can knock off that much from peek price.
Where we are left today, is a correction that barely moved detached prices, condos surged by 6 figures, and rents up 30-50% in the last 5 years alone.
This now a monopoly game. You can’t win unless you buy RE. Those who have RE control the game.
Income no longer is the fundamental supporting sales, ITS WEALTH and there’s enough of it to support the market.
Where does this WEALTH!!!!!!!! come from? Housing?
So the WEALTH!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! homeowners have in their homes, will be used to buy more properties thus supporting SALES! ?
Or do you mean that WEALTH!!!!!!!!!! is supporting PRICES?
Very interesting theories Jungle. Use wealth from one property to buy another increasing sales volume and then prices, then use new found WEALTH!!! to buy more properties. Rinse wash repeat. MONEY FOR NOTHING, CHICKS FOR FREE!!!!
What I do get is why we are the first generation ever to realize that all you have to do is borrow your way to prosperity. If every Canadian owned 5 properties each than we would all be RICH. WOOOOOOO! And then if we each bought one more property each all of our older properties would go up in value and we would be even WEALTHIER!!!!!!!!!!!!!!! God damn!,older people are morons.
Those stupid Americans should have just kept buying more and more property each back in 2006 and that whole GFC thing could have been avoided. MORONS!
Treb area averages 90k sales year, Gta is 6.5 million (10m by 2040), and the average detach in Toronto is worth 1.4m (Zolo) there is enough to keep this going.
This doesn’t even consider foreign money which is alive more than gov will admit despite low sales reports. The other day 6 rich Chinese students showed up at the club with 6 exotic cars, lambos, masa ratty, you name it. This is real there’s pictures people couldn’t believe this is happening in Toronto now, most expect La or something.
Considering this
90k Treb sales year doesn’t include new condo sales
They are not building More detach in Toronto
Unlikely build new more hiways and subways
Tech jobs are booming at insane rate, Gta has second biggest tech corridor next to silicon Vally.
160k on the sunshine list Ontario alone
The high income speciality jobs are increasing, 150k +
Heck even to cops are making 150k np with small overtime
Look average prices surging again as confidence comes back to market, 2-4 months of inventory at the most ex York region, means a health and stable market.
You would think the stress test would have impacted more but instead it just made condos surge.
Torontos very desirable on a global scale and this is not going to stop . Somethings changed making it different this time.
Really!!!??!!! 6 rich Asian kids with 6 different cars? That is bullish. It is different this time!
Please you have to tell me Jungle. How do i get the WEALTH!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Treb area averages 90k sales year, Gta is 6.5 million (10m by 2040), and the average detach in Toronto is worth 1.4m (Zolo) there is enough to keep this going.
This doesn’t even consider foreign money which is alive more than gov will admit despite low sales reports. The other day 6 rich Chinese students showed up at the club with 6 exotic cars, lambos, masarrtti , you name it. This is real there’s pictures people couldn’t believe this is happening in Toronto now, most expect La or something.
Considering this
90k Treb sales year doesn’t include new condo sales
They are not building More detach in Toronto
Unlikely build new more hiways and subways
Tech jobs are booming at insane rate, Gta has second biggest tech corridor next to silicon Vally.
160k on the sunshine list Ontario alone
The high income speciality jobs are increasing, 150k +
Heck even to cops are making 150k np with small overtime
Look average prices surging again as confidence comes back to market, 2-4 months of inventory at the most ex York region, means a health and stable market.
You would think the stress test would have impacted more but instead it just made condos surge.
Torontos very desirable on a global scale and this is not going to stop . Somethings changed making it different this time.
lol Grizz. classic boomer theories. Probably makes his wealth at the top of a pyramid scheme. speaking of pyramids, they cant stand without a base, and thats drying up fast as people max out their borrowing power.
*pours one out for our boy blue
@Jungle Seriousness!!! what a laughable interpretation of the market. I feel sorry for you because I know if you are invested in RE in GTA you are setup for a loss of lifetime take my word.
now without WASTING my words just remember few rules or science/nature or God in whatever you believe.
– There is day after night and again day (Cycle) (Law of nature)
– What goes up must come down (Try at home throw a ball up in the air) (Law of nature)
– Up down Up down (Sine wave science)
– RE up down up down (Lot of morons don’t get this they say only UP UP UP UP …….and UP)
Gus we always thought to compare to USA crash, but we don’t have the NINJA loans instead the cmhc protects such rapid collapse , delinquency rates keep going lower and there is no sign of trouble only strength for toronto
We have the Brampton Loan my friend. Its the loan your uncle Bruno the plumber made to that house horny couple next door to your investment property, so that they could buy an additional investment property too. Its secured as a second or third mortgage and his claim is safely in line right behind the real banks.
He calls himself a private lender, and chuckles while he brags about how you can borrow it for 4% and then lend it back out at 12%. I’m sure he only selects the most trustworthy borrows to lend to but Bruno should just really stick to over charger me for a service call when I need my toilet unclogged.
Jungle,
1) Our HELOC exposure is waaay bigger than US 2008
2) Almost 50% mortgages were up for renewal this year. I don’t expect this number to be much lower next year but it’s not the point, the point is that US has 30y terms and people didn’t have to renew during the RE crash. Canadians will have to renew during crash and who know how it will go for underwater mortgages.
3) Debt levels were way lower in US prior to crash so population was able to tolerate much bigger rate increases.
The rates are still very low. This is the only reason why prices are not crushing. Each additional increase will have a greater effect. 1.5% is a third of 4.5% we had in 2007 when prices began to fall. It is not surprising to see price growing or flat when rate is 1.5%. Let’s see what happen when it is above 3%. RE may stop being an investment tool for a long time. When speculators see it the active listing will explode.
Median household income in Toronto is about 78,000.
https://www.google.ca/amp/s/m.huffingtonpost.ca/amp/2018/03/14/top-one-per-cent-canada_a_23385825/
Average price of a home in GTA is about $780,000.
25 year mortgage at 3.8 percent is about $3,800.
I hope jungle is right! If not it is going to be ugly for a lot of people:
Median household income in Toronto is 78,000 gross.
JJ comments above on The Smith Manoeuvre and advisors recommending it while rates are rising. The strategy was developed and widely implemented in the mid-80’s and continues to be. The Smith Manoeuvre worked through those periods of very high rates and will continue to as rates increase going forward. Rates are only one factor of many which determines success with the strategy.