Canadian consumer borrowing is suddenly accelerating, and home equity borrowing was no exception. Bank of Canada (BoC) data shows Home Equity Lines of Credit (HELOC) borrowing just saw the biggest September growth since 2009. The increase is part of a broader trend that’s pushed annual growth to the highest rate in nearly 13 years.
What The Heck Are HELOCs & Is The Growth Good or Bad?
Today, we’re strictly looking at HELOCs—a revolving line of credit secured by home equity. There are other equity-based loans to borrow against a home’s value, but they aren’t the same, despite being marketed that way. We’ll dive into those numbers on another day, but HELOCs account for roughly half of all home equity-based loans.
Secured debt has lower risk, so it’s cheaper than normal lines of credit and provides access to large amounts of money fast. That’s ideal for mitigating emergency shocks like large repairs and job loss. If used properly, it can also provide relatively cheap capital to facilitate investments, playing a key role in tax-reduction strategies like the Smith Manoeuvre.
HELOCs can also be problematic—especially when people use them to tap their home like an ATM. Fast-rising home values can create lifestyle inflation, amplifying vulnerability to events like job losses. Agencies like FCAC and OSFI have expressed concerns, suggesting HELOCs can “significantly increase” the chance of mortgage defaults. To their point, over 40% of mortgage defaults in the US between 2006 and 2008 involved homes with HELOCs.
HELOCs aren’t inherently good or bad, but how they’re used is the real problem—similar to all credit. Or as we say around here, credit doesn’t kill people’s finances, people kill people’s finances.
Onto today’s data!
Canadian HELOC Debt Climbs Back To 2020 Levels
Canadian Consumer Credit: Balance of Home Equity Line of Credit Accounts At Large Financial Institutions.
Source: Bank of Canada; Better Dwelling.
Canadian HELOC debt made a big jump—especially for this time of year. HELOC balances grew 0.7% (+$1.20 billion) to $178.92 billion in September, up 4.2% ($7.13 billion) from last year. This is the highest level since March 2020, but more interestingly, it was the biggest growth for the month since 2009, 16 years ago. The month’s surge is part of a broader trend of sudden acceleration.
Canadians Are Tapping HELOCs At The Fastest Rate In 13 Years
Canadian Consumer Credit: Annual Growth Rate of Home Equity Line of Credit Balances At Large Financial Institutions.
Source: Bank of Canada; Better Dwelling.
Canadian HELOC balances are growing at an unusually rapid pace these days. The 4.2% annual growth reported in September marked the 8th month of acceleration. This is the fastest annual growth since December 2012—almost 13 years.
The rate is rising so sharply that it’s less than a point below the growth rate of outstanding mortgages, a less specialized product that Canadians are historically more comfortable with. Recall this is also just the strictest definition of HELOC, discounting similar loans with slightly different terms.
The reason behind the sudden surge isn’t exactly clear. Growth typically occurs alongside rising home values and elevated real estate purchasing, neither of which is currently a concern. It is accompanied by rising financing needs for investment properties purchased at the pre-construction phase. If these trends aren’t just a coincidence, households may be quietly levering up and concentrating risk—again.
Cost of living, reduced hours, job losses, trade uncertainty, the reasons are not clear?
Flunkies across Canada thought everyone was aiming for the same markets. There are thousands of Canadian communities, cities and towns and tens of thousands more of them across the USA and even more than than that in other desired locations around the world.
If you look at the first chart pretty strong correlation with the increase in Heloc Debt vs Home Prices.
How many of them are maxing out their HELOC, and fleeing the country?