Canadians Borrowed $22 Billion More In Home Equity, A New Record For Growth

Canadian real estate values are soaring, but owners don’t want to sell to tap that windfall. Instead they’re taking out loans against the equity — big loans. Regulatory filings reveal a surge in home equity line of credit (HELOC) debt in April 2022. However, HELOC debt is just a part of the total for home equity loans. Including similar loan products, the size of debt nearly doubles. They’re also growing at one of the fastest rates in history, despite higher interest rates.

Canadian HELOC Debt Is Rising At The Fastest Rate Since 2013

Canadian HELOC debt is climbing after sliding in popularity for a few months. The outstanding balance reached $168.8 billion in April. This is an increase of 0.9% ($1.6 billion) from the month before and 1.8% ($3.1 billion) higher than last year. HELOC debt has generally been on the decline since 2010, but the trend is now reversing direction.

Canadian HELOC Debt

The outstanding balance of Canadian home equity line of credit held by institutions.

Source: OSFI; Better Dwelling.

Growth might sound small, but there’s been a shift in the trend that’s worth noting. At just 1.8% annual growth in April, the rate is the highest since April 2013. Outstanding HELOC debt only recently returned to positive growth in February. Prior to that, only about 1 year in the past 9 showed positive momentum.

Canadian HELOC Growth

The annual growth rate for Canadian HELOC debt.

Source: OSFI; Better Dwelling.

No, that doesn’t mean Canadians haven’t been tapping their home like an ATM. Quite the opposite. The difference is the regulator has decided to place a hard definition on HELOC products. Similar types of products are no longer included in the outstanding balance. For instance, if you have a home equity loan with fixed terms, it’s not a HELOC. It requires variable rates.

That last point might provide a little insight into why HELOC loans are all of a sudden growing. Variable rates weren’t popular during the past decade’s low rate era. Why not lock in your cheap debt just in case something happens? Now that fixed rates are rising, borrowers are often looking to variable rate loans. They save a little money, likely doubting variable rates will rise to the fixed offering soon.

Now, if we include the other types of home equity loans, we see a big jump in debt. Not just the balance of loans being secured by housing, but the growth rate as well.

Canadians Owe $295 Billion In Debt Secured By Home Equity

The combined balance of all home equity secured loans is much higher. The outstanding balance reached $294.9 billion in April, a new record. It grew 1.3% ($3.8 billion) from a month before and is 8.0% ($21.9 billion) higher than last year. Annual growth was also a new record. 

Home equity debt is growing at a breakneck speed, as owners tap their windfall for spending. This most likely provided a big boost to consumer consumption. In other words, much of the spending or investing we’ve seen is based on borrowing recent gains.

This is a part of the issue with letting home price growth run wild for years. Economic growth is slowly becoming more dependent on borrowing non-productive asset gains. The longer this occurs, the bigger the impact when the economy needs to shift back to real gains driven by productivity instead of non-productive asset price growth. 

6 Comments

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  • Winnie The Pooh 5 months ago

    The economy is a housing Ponzi. Inflate values, lend people more money, let them borrow the inflated values to pay for their life, continue.

    If immigrants ever realize they’re being scammed, the bottom falls out.

    • So Ki 5 months ago

      Immigrant here. Trust me we do realize. If immigrants can uproot themselves and leave their homes, countries, families, friends and culture to immigrate here for economic reasons, they can just as easily immigrate back when the economics of staying makes no sense.

      For a price of a single home in Canada, it is possible to purchase up to 5 homes in some countries. This incentive for immigrants and retirees to cash out must be removed asap.

    • Ron 5 months ago

      That how its been designed in Canada 🙂 Old immigrants exploit the new ones trough assets apritiation (not only). Im talking about the ones that are coming here to work ,not the ones that are looking to park their money in the real estate.

  • Zalzon 5 months ago

    I hope the real estate gambling losses (i.e mortgage defaults) are not bring transferred onto the backs of taxpayers via CMHC (or bailouts, stimulus or other fancy means) when it all comes crashing down.

    The banks and real estate flippers made good money on the way up. Are taxpayers now supposed to eat the mortgage default losses on the way down?

    As it stands, the premiums CMHC charged for hundreds of billions of mortgage insurance was devoid of private sector insurance participation to set premiums (i.e. no proper pricing of risks).

  • Mark Bayly 5 months ago

    Higher interest rates and inflation on everything besides wages is going to destroy all these debtorama people And then everyone especially the Toronto star will be crying the blues and blaming the conservatives and Trump Quite a circus.

  • BCModerate 5 months ago

    Guy Mitchell said it best although he didn’t know he was talking about Canadian Real Estate at the time:

    Well, I never felt more like singin’ the blues
    ‘Cause I never thought that I’d ever lose
    Your love dear, why’d you do me this way?
    Well, I never felt more like cryin’ all night
    ‘Cause everythin’s wrong, and nothin’ ain’t right
    Without you, you got me singin’ the blues.
    The moon and stars no longer shine
    The dream is gone I thought was mine
    There’s nothin’ left for me to do
    But cry-why-why-why over you (cry over you)
    Well, I never felt more like runnin’ away
    But why should I go ’cause I couldn’t stay
    Without you, you got me singin’ the blues.
    Well, I never felt more like singin’ the blues
    ‘Cause I never thought that I’d ever lose
    Your love dear, why’d you do me this way?
    Well, I never felt more like cryin’ all night
    ‘Cause everythin’s wrong, and nothin’ ain’t right
    Without you, you got me singin’ the blues.
    Oh, the moon and stars no longer shine
    The dream is gone I thought was mine
    There’s nothin’ left for me to do
    But cry-why-why-why over you (cry over you)
    Well, I never felt more like runnin’ away
    But why should I go ’cause I couldn’t stay
    Without you, you got me singin’ the blues

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