Canada

Canadians Owe Over $294 Billion Secured Against Their Home Equity

Canadian real estate owners borrowed another billion of their home equity. Office of the Superintendent of Financial Institutions (OSFI) numbers show the balance of loans secured by home equity hit a new record in October. The balance, which is slowing in growth, is primarily consumers borrowing for personal consumption.

Loans Secured By Residential Property

Loans secured by residential real estate are when a borrower pledges a home as collateral for a loan. Securing debt with real estate allows borrowers to get both cheaper and larger loans. The most popular form of debt issued this way is a home equity line of credit (HELOC). Regulators like to split the category into two segments, personal or business.

Personal and business loans secured by home equity are done the same way, but mean different things. Personal loans are generally for consumption, meaning the cash is mostly gone. Banks pitch consumers on these loans for vacations or suggest using it as a downpayment on a second home. Business loans are routine, since new companies often need a personal asset guarantee. Seeing growth in personal loans means people need short-term cashflow assistance to consume. That’s generally a bad thing. Seeing a rise in business loans means businesses are confident in expanding, which is a good sign. We want to see low growth in personal, and high growth in business ideally.

Total Debt Secured By Home Equity Rises To Over $294 Billion

The total of debt secured by residential real estate hit a new record. The outstanding balance of these loans reached $294.16 billion in October, up 0.63% from the month before. That’s an increase of 4.5%, when compared to the same month last year. We’re still seeing substantial growth, but it’s a lot slower than last year.

Total Loans Secured With Residential Real Estate

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

Source: Regulatory Filings, Better Dwelling.

The total growth rate is still high, but a lot lower than last year. Last year this time, we saw the 12 month pace of growth hit 9.03% in October. That puts the growth rate at 50% lower than the same month last year.

Personal Loans Secured By Home Equity Rise To Over $264 Billion

The vast majority of loans secured by home equity are for non-business purposes. The outstanding balance in this segment reached $264.76 billion in October, up 0.55% from the month before. That’s an increase of 6.12%, when compared to the same month last year. Personal loans in this segment have hit a new record, but the pace of growth is starting to taper lower.

Personal Loans Secured With Residential Real Estate

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

Source: Regulatory Filings, Better Dwelling.

October’s growth rate is down from the same time last year, and following a trend of slower growth. The 6.12% 12 month change in October is slightly lower than the month before. It’s also 2.08% lower than the same month last year. That said, the rise in the cost of servicing these loans should have reduced the pace of growth much more.

Business Loans Secured By Home Equity Falls To $29 Billion

The balance of business loans secured by home equity is falling. The outstanding balance fell to $29.402 billion, up 1.39% from the month before. The outstanding balance is now down 8.12%, compared to the same month last year. Unfortunately, the segment that we want to see growth in, is falling the fastest.

Business Loans Secured With Residential Real Estate

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

Source: Regulatory Filings, Better Dwelling.

The pace of growth is way slower than we observed last year. In October 2017, we saw the 12 month growth rate for business loans hit 36.88% – which is monster growth. This year we’re 122% lower than that number, and actually seeing a contraction. It’s great that businesses are paying off the loans. It’s also a concern that other businesses don’t see this as a time to borrow.

The decline in growth is expected, as interest rates rise. After all, higher borrowing rates are designed to slow credit growth. The growth rate for HELOCs is still far outpacing general credit growth though.

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6 Comments

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  • Wesley 7 months ago

    Don’t forget how much of this money was wiped out on bad MICs. So many mortgage brokers suggesting that people borrow at 5%, and lend at 10%. It’s a great profit, until one or two of these deals blows all of your capital.

  • Party on 7 months ago

    The borrowing and spending binge by Canadian households, businesses and governments (all levels) continues unabated.

    At the end of September, 2018 the total debt outstanding in Canada (bottom line of the Statistics Canada credit market summary data table) was $7.953 trillion. At the end of September, 2017 the total debt outstanding was $7.577 trillion. In the 1 year period from the end of September, 2017 to the end of September, 2018 it increased by $376 billion. This is an increase of 4.9%.

    https://owecanada.blogspot.com/2018/12/canadian-total-household-business-and.html

    • Trevor 7 months ago

      Wow. To get some perspective on that number, it’s about half the size of our GDP added by debt. I understand that governments should be conducting long-term financing at the these rates, but households are responsible for a large amount of it. Unlike government that secures these rates for 30 years, Canadian households play rate roulette where they find out how much they owe on the debt every 5 years.

  • Gregory 7 months ago

    Thanks for all the good news, you are right, the growth rate has come down a lot.

    $230B to $295B over the last 6 years, around 4% CAGR annual growth… prices of Real Estate in Vancouver & Toronto are certainly up a lot more than 28% since 2012… so significantly less leverage it appears.

    • Smaug 7 months ago

      Those are just HELOCs. They’ve said nothing of mortgage debt, which has also climbed, as have other forms of debt. “Significantly less leverage” is not how one would describe what has happened to most households over the past 6 years, in Vancouver or elsewhere.

    • Smaug 7 months ago

      Here are some figures:

      Household debt as % of GDP in Q3 2012: 92.81%
      Household debt as % of GDP in Q3 2018: 100.71%

      Household debt as % of annual disposable income in Q3 2012: 162.63%
      Household debt as % of annual disposable income in Q3 2018: 176.01%

      Source: Statistics Canada, Table 38-10-0235-01, Financial indicators of households… (Formerly CANSIM 378-0123)

      That looks like significantly more leverage to me.

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