Canada

Canadians Withdrawing Home Equity Is Picking Up Again

Canadian real estate used to borrow more debt reached a new record higher. Office of the Superintendent Financial of Institutions (OSFI) filings show the balance of loans secured by homes reached a new high in July 2018. The vast majority of the balance is due to personal loans like HELOCs, which are actually seeing growth pick up again.

Loans Secured By Residential Real Estate

Loans secured by residential real estate are what the sound like – using a home as collateral for debt. Homeowners can withdraw equity they’ve built or given by the market, turning a house into a magic ATM. They come in two major categories, for personal and business use.

Personal and business use are done the same way, but the growth can mean very different things. Personal loans are consumer debt, sometimes called HELOCs, and are usually for consumption. Business loans secured by homes are usually constructive debt, a.k.a. an expansion of small business. Personal loans kill the benefits of future income growth, so we want to see low growth here. Business loans are usually a sign of confidence in the economy, so we want to see growth here. Well, we being society. If you’re a mortgage broker, you probably want both of them to pop to new heights.

Canadians Owe Over $289 Billion In Debt Secured By Real Estate

The balance of property secured by property ripped to a new high. The outstanding balance stood at $289.68 billion at the end of July, up $2.87 billion from the previous month. The annual increase works out to 2.58%, an increase from the month before. Yup, the balance of debt may have just accelerated in growth. Let’s break it down and see what people are doing with this cash.

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 $260B In Personal Debt Is Secured By Canadian Real Estate

Personal loans secured by residential real estate represents the largest portion of debt. The outstanding balance on these loans reached $260.85 billion in July, up $1.88 billion from the month before. The annual increase works out to 5.79%, also a slight increase from the month before. Canadians have been inspired to borrow against their home once again.

Personal Loans Secured With Residential Real Estate

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

Source: Regulatory Filings, Better Dwelling.

Over $28B of Home Equity Is Being Used To Secure Business Loans

Business loans secured by residential real estate is heading lower, and fast. The balance of business loans reached $28.83 billion in July, up $992 million from the month before. Despite the monthly increase, the balance is down 19.52% compared to the same month last year. The good news is small business owners are deleveraging quickly. The bad news is they’re not borrowing capital here for expansion.

Business Loans Secured With Residential Real Estate

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

Source: Regulatory Filings, Better Dwelling.

The rising balance of debt secured by real estate is not problematic in theory, but when and where is an issue. The balance of debt grew as home prices made the largest jump in Canadian history. In the event of a price correction, borrowers may find themselves with less equity than expected. Over a quarter of HELOC borrowers have been seniors, which is a tough age to find yourself short on cash.

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13 Comments

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  • Mack 1 month ago

    Makes sense, since so many condos registered in July. Bank of mom and dad are probably raising capital for their kids to close.

    • Ford Nation 1 month ago

      There’s no possible way for kids to buy their own home without the help of their parents. Building restrictions artificially inflate prices.

      • Bluetheimpala 1 month ago

        Lol, this is fake news bud. You’re new so consider my response a pass. This is BD nation. BD4L.

        • Shreds4L. 1 month ago

          Nation of growing kids in backyard shreds.

  • Ian 1 month ago

    HELOCs are reverse mortgages for people that aren’t retired yet. Since they’re just interest only, people are using it to supplement their lifestyle. When that’s gone, they’re going to be screwed when a correction wipes out enough equity to make their loan callable.

    • Isee 1 month ago

      . . . or if they reach the HELOC’s limit and no more “supplemental income”. Living for free and beyond means is what the system have created.

  • Rick Abrams 1 month ago

    Business related loans on homes may NOT be wise if they mean regular business leaders have refused normal credit. Whenever a real estate down turn is foreseeable increasing home debt is unwise and that increases the chance the home will be underwater. That then can be a significant problem if income drops or the owner has to sell

    • Paola 1 month ago

      A business with less than 5 years of credit history will almost always have to owner pledge their collateral. Those are important years where you would need a loan, so it’s really not all that strange.

      You would have to flip on the business, and not find another way to pay off the personal liability. There’s a much bigger buffer than with personal loans.

  • Bob 1 month ago

    Your graphs should show the total dollar amount against the current value of the real estate. I suspect that as a percentage of the value of the RE, the total outstanding loan amount is declining.

    In B.C. over the last few years, real estate wealth has grown much, much, much faster than GDP. So a little increased borrowing against it won’t amount to much.

    • Bluetheimpala 1 month ago

      Hi Bob, I think you’re new…I’ll leave the ‘RE wealth’ alone because that’s just a silly comment…ahh heck, here we go…#1 it is equity not wealth, until someone cashes out and the greaterfool takes it on all you have are numbers on a page. There is zero value to an asset until someone else buys it; that is the truth. It may be stripped down to the inputs or the entire thing may be worthless…anyone buying $50 pogs or beenie babies anymore? I’m personally sitting on over $1M in fidget spinners, mad spinner rich bro but the weird thing is I can’t sell them…hmmm, weird right?
      #2 sure increasing debt loads by leveraging an asset is all hunky dory until, well the asset value drops which is essentially where we are headed. In the middle of a dead cat but if you think there won’t be a freak out come Spring (remember rate increases…central banks don’t care about stupid apes being stupid, heck trump is doing everything he can to influence the FED and JP is telling him to suck a ‘toadstool’). Soooo, while I like you bob, I’ve always liked the name bob because it is fun but can also be serious and command respect, I can’t take your comment seriously. Oh and BC is shit slurry of bad money, wonder how it kept on going but then suddenly took a dive faster than TO? I didn’t. Tick tock. BD Nation. BD4L.

    • CS 1 month ago

      Sadly, its going to amount to a lot very soon.

  • Bob 1 month ago

    “They are starting to talk about when and where they will decamp to foreign shores, once Hong Kong starts to resemble the mainland too much.”

    https://www.washingtonpost.com/outlook/2018/09/20/hong-kong-is-being-hit-hard-by-weather-politics/

    Globalization changes everything. Auckland, Sydney, Copenhagen, Stockholm and Vancouver are really, really nice places compared to 99.99% of the world. Just because our local politicians are not appropriately valuing real property here, doesn’t mean the rest of the world isn’t.

    Here’s an example of a tiny 1/2 duplex in a busy part of East Van that sold this week over ask, for nearly $1,500,000:

    https://bcres.paragonrels.com/publink/default.aspx?GUID=5e11531e-9c08-4ea1-94ce-c94294fc78f8&Report=Yes

    That property, and that selling price are totally disconnected from wages in Vancouver. No correlation whatsoever. It is all about globalization, the injection of concentrated global wealth into the local economy and the effects of marginal demand.

  • username 1 month ago

    Go Bob! Blue you are way too condescending bro, ease up on the caffeine intake.

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