Canada

HELOC Crazy Canadians Are Cooling Their Borrowing Sprees

Don’t worry, Canadians are still using their homes as ATMs. Office of the Superintendent of Financial Institutions (OSFI) filings show a new debt record in April. The balance of loans secured by residential real estate reached an all-time high. While the segment of debt is slowing in growth, it’s growing faster than national home prices.

Loans Secured By Residential Real Estate

Loans secured by residential real estate are when people pledge their home as collateral. By “securing” their loans, they can borrow at lower rates and face less income scrutiny. The number is often used by government as a proxy to measure home equity lines of credit (HELOC) debt. Boring – you know, Canadians are up to their neck in debt. The takeaway isn’t the balance itself, but the type and movement. These indicators give us some insight into consumer behavior.

The numbers are broken down into two major segments, personal and business. Personal loans secured by real estate are great for banks, but a sign of consumer leverage. Some leverage is re-invested, but banks pitch them as home renovation or vacation funds. Either way, an increase in consumer leverage makes them more vulnerable to shock.

Business use differs, because home equity is often required for small business loans. When this segment increases, it’s considered a good thing. If people are borrowing for small businesses, they’re hopefully confident in consumers. People generally don’t start or expand businesses when they’re anxious about the economy. In an ideal scenario, personal use is at stable and low growth, and business use is rising.

Canadians Secured Over $299 Billion In Loans With Property

The balance of loans secured with residential real estate reached a new all-time high. The balance hit $299.6 billion in March, up 0.21% from a month before. The annual pace of growth works out to 5.25%, making it the smallest March since 2016. The vast majority of this growth was in the personal use segment.

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 $267 Billion of Those Loans Were For Personal Use

Most of these loans were for personal use, according to filings. The balance marked as personal use reached $267 billion in March, up 0.12% from the month before. This represents an increase of 5.91% compared to the same month last year. It’s a new record, but growth is down from last year. Last April was the largest for growth – going back over half a decade.

Personal Loans Secured With Residential Real Estate

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

Source: Regulatory Filings, Better Dwelling.

Over $32 Billion Is For Business Purposes

The level of growth for business purposes is looking weak. The balance reached $32.5 billion in March, up 0.95% from last year. Compared to the same month last year, it’s up just 0.17%. The balance is not at an all-time high, which was reached in May 2017. Growth peaked in June of that year, and has been on the slide since.

Business Loans Secured With Residential Real Estate

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

Source: Regulatory Filings, Better Dwelling.

The balance of loans secured by homes is at a record high, but growth is falling in both segments. One thing worth calling out is personal loan growth is now outpacing home price growth. This could leave quite a few people with less cash than they expected, if the debt continues to compound. It’s an issue Bank of Canada researchers expressed, also noting these loans could be hiding financial distress. As for the segment of business loans, it was weak. That isn’t a bad thing – but it’s not a good thing. Growth rates for business typically line up with peak economic growth.

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46 Comments

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  • Wowzers 3 months ago

    Look I’m rich. Look what I’m buying. Look at the vacations I’m buying.
    Look at the restaurants I’m eating at.
    Look at my beautiful house.
    Look at my beautiful cars.
    I’m heading to Costco too.
    Only the best for me.
    Now all I need is a pool in the backyard and a cottage up north and a yacht and a jet and a..gift for me because I deserve it.
    Every Tom Dick and Harry today has this going on and only making a little more than min wage if that.
    And people want the stress test removed????
    I don’t think so.

    • Investor 3 months ago

      You should blame the Banks, Government and Policy Makers for that “Stress Test” removal news even gaining traction. It’s ridiculous!

  • Ethan Wu 3 months ago

    “While the segment of debt is slowing in growth, it’s growing faster than national home prices.”

    Most important point IMO, wish you would explain it to people. Consumption is now coming at a cost of home price growth. Interesting.

  • Go Rapters! 3 months ago

    MM your up early and poking the bear.Let the games begin.

  • Tony 3 months ago

    So what? Don’t make a fuss!!! Just do the math:
    37 Mil people in Canada that makes about 6 Mil Family(6 ppl a family).
    Home ownership 67% that’s 4 Mil home owner.
    $299 billion HELOC / 4 Mil family = $74,750 HELOC Loan / per Family
    HELOC $74,750 @ 25 years @ 3.14 Rate = $359 /per month = Drive 3 day Uber or Dinner Out 1-2 times Less a month.
    I found this website is very Anti- Real Estate

    • Trader Jim 3 months ago

      JFC. So much idiocy in this, it’s not even worth unpacking.

    • John 3 months ago

      So you’re saying people should just consume less right?

      Restaurants should lay people off. Farmers should sell less product. People should use less services in a service economy. We should just slow our GDP and put people out of work, and yet those people who are out of work no longer can pay their bills? I believe this is the proverbial ‘House of Cards.’

      Further, if the average family needs to save money, then the average family can’t afford to take Uber. Who then is this Uber driver going to pick up during these 3 days of extra work? What happens to driver profits there is an overabundance of drivers, and no customers.
      What about the family who can’t afford a modern car approved by Uber?

      I find your comment very Anti- Logic

      • Smaug 3 months ago

        Yes, I was about to ask Tony, if 4 million home owners start driving for Uber, who is going to take Uber? All those families will need to take turns driving each other around. I guess that’s where he comes up with the 3 days per week. That way they can alternate. Mon-Wed-Fri I can Uber you around. Tue-Thu-Sat you can Uber me around. Sunday is rest day. Win-win!!

        Wait, doesn’t that sound just like the Ponzi real estate market of the past 20 years? Let’s sell houses to each other at ever-increasing prices and the economy will grow forever!

        Tony will be shocked when the strategy that worked so well for real estate fails to work for Uber drivers. The reason is simple of course. Banks won’t lend us money to keep paying for more expensive Uber rides.

      • Bluetheimpala 3 months ago

        Bueno. Good insight. Tock. BD4L.

      • Average Man 3 months ago

        John, some of us actively want the whole house of cards to fall.

    • Oldguy 3 months ago

      Your analysis is interesting, but it obviously makes no sense to assume that every home has a HELOC attached to it. Many homes are debt free and most others have bank or private mortgages. So assume that 25% of homes have a HELOC. In that case, using your numbers, the monthly carry would be $1436. Now you need to do a lot more than Uber a few nights or skip a few meals. And what happens if today’s historically low rates return to normal levels sometime in the next 25 years?
      So just keep whistling past the graveyard and borrow, borrow, borrow. If things get out of hand, there are still some good old fashioned loan sharks around.

    • Smaug 3 months ago

      Everyone cut eating out and drive 3 days per week for Uber. Problem solved!

      I found your comment to be very anti-reality.

      (Pssst…Tony! You know that thing that happens when people collectively cut their spending? We call it a recession. The credit cycle is turning Tony. That Uber gig isn’t going to help your indebted clients nearly as much as you think.)

      • Tony 3 months ago

        Drive Uber 3 days or Dinning Out 1-2 times Less PER Month, not a WEEK, please read it carefully before you jump in. Also, I agree with you that real estate market is a Ponzi and our banking system as well, just face it, wall street will printing more & more money and bay street will follow them. compare to stock or keep cash in bank account, real estate still good tool and safe way to fight Ponzi Banking System and keep value of our hard earn money for the long run. hard to say how is the RE market in next 1-2 years, but in next 10 or 15 years house price should be double.

        • John 3 months ago

          #EpicFacePalm

        • Rui Amaral 3 months ago

          Hardly. Look at the US… heading back into a recession yet again and more houses going up for sale at lower prices (shit… look at how many are in foreclosures today) and you will see that it is not the reality that is coming our way.

    • Bluetheimpala 3 months ago

      Uncle tony! Oh yeah, so true just, like you know, make more coin…drive Uber, sell organs, knock off a casino a la ocean’s blumpteen…of course, it is so simple. And of course national debt loads are spread evenly, in fact I just got a call from my bank and now I just assumed someone’s debt; glad I could help them carry the burden. Those footprints in the sand ain’t Jesus’ they are blue. Are you naive or an 88/number jockey? Your comment is similar to my kid telling me we can totally buy a tiger because he has $5 in his piggy bank. I don’t mean to be critical but once you pull my fist out of your ass, please reply. We aren’t anti-RE anymore than you are anti-reality. Tock. BD4L.

  • FOMO 3 months ago

    Love how I was served up a 3.5% HELOC advertisement, When I click on this story.

  • Cto 3 months ago

    Personal loans extremely high. business loans extremely weak! So really the only thing all this borrowed money is going into is generally the real estate sector.
    Nice job Bank of Canada and all central banks for keeping interest rates at emergency levels for a decade running.
    Little to no money going to business start-ups or new Industries or innovation or manufacturing or products and services.
    Seems to be these decade-long emergency interest rates have created the biggest Miss allocation of funds ever in history the world has ever seen.!
    Might as well just raise them…
    Not going to make a difference ,Actual real business not borrowing the money anyway, at least not Canada.

  • Jupiter 3 months ago

    How about we start by taxing residential property being owned by corporations?

    Or how about increase the property tax on non primary family residential property?

    Toronto needs to bring housing cost down or we will see another wave of economic destruction. We are just enslaving young families to feed boomer wealth. Very soon young professional families who pay most of the taxes will leave Canada due to high taxation rates and high cost of living. Remember this Toronto does not pay high wages compare to other places.

    Bring down housing cost or face economic erosion down the road where everyone pays. Who will keep the boomers alive when there is no tax payers to support the health care system?

    • mmr 3 months ago

      Ford government need to withdraw 15 percent tax so we can capture the BC rich people fleeing and invest here. This will increase investment…create more jobs…. Increase tax revenue and higher economic growth.

      • RainCityRyan 3 months ago

        While real estate investment creates jobs, it’s incorrect to think that it’s the best use of resources. Resources should be used to make the economy and each person more productive or to provide an essential service.

        It’s basically the Chinese model of propping up the GDP by building huge ghost cities that no-one ever lives in. Sure it keeps people busy (and so long as someone lives in the unit it’s providing a service) but it’s not making the economy more efficient.

        Imagine building a highway interchange (on ramp, off ramp traffic lights etc). The actual building of the interchange creates some jobs and keeps people busy, but if the interchange is in the middle of no-where and no-one ever uses it then did it do any lasting good for the economy?

        Now imagine the same interchange in the middle of a super busy highway where the interchange makes deliveries 1hr shorter round trip. The real benefit to the economy is the increased efficiency from the interchange (not just building it).

    • Tony 3 months ago

      Detroit have $1 house for sale, no one wanna be there, best city always have best house price. The Reality is every one have to earn their right to live in best city by work hard otherwise they have to move, Kitchener-Waterloo & London housing price are rise fast but still affordableis good place to work & live.

      • Average Man 3 months ago

        Dude. Detroit is a great fucking city and if I was American I’d move there in a heartbeat. Also, people live in communities, and cities should be accessible to everyone, you amoral fuck.

  • Cto 3 months ago

    MM
    You’re a genius!
    I totally agree!
    Canada is very much a social welfare state.
    The very first thing we need to tackle is the bank’s social welfare of cmhc! This entity needs to be completely removed from housing.
    Then we to get started on the taxes. If you eliminate the taxes then we can raise the interest rates to normal values.
    People will have more money in their pocket to actually spend rather than just have to borrow from there HELOCs.
    First you must eliminate cmhc though.
    See?… you and I can agree on things!

  • Cto 3 months ago

    CMHC and low interest rates are by far the only 2 things proping up housing in this country.
    MM. I’m lazy. Can you start by writing a letter to the Canadian Government requesting them to remove CMHC. And post it on here, so we all can send it.thx

  • Iain Palmer 3 months ago

    We are seeing change everywhere, this move to HELOCs is just natural. As a mortgage broker for over a dozen years, the HELOC was my most often used product. To qualify that I need to point out that my market niche was the 40+ age group with good jobs and considerable equity in their home. The move from bank loans that are unsecured (@ prime + 3%) to one that is secured (HELOC @ prime + 0.5%) just makes sense. A lower rate loan that can be paid down as fast as you like but can continually be drawn down is a perfect solution to countless professions. Oh and by the way what one uses these loans for is nobody’s business although the mortgage application requires this information. Once a loan is secured, its actual use is an unknown, it is nothing more than available credit for any use. HELOCs are tipically only given out at 50% loan to value (maxing out at 65%) which is almost risk free for the bank. I suggest that a growth in this sector of the mortgage market shows increased consumer awareness and much better business for banks.

    • Up4never 3 months ago

      Or, possibly, it signifies a population living off debt which is quickly becoming unsustainable.

    • MH 3 months ago

      A perfect solution for countless professions is to live debt-free. The argument that a certain variety of debt is better for their prospective clients is a favorite spiel employed by credit pushers.

      https://youtu.be/PgGLgygsqus

  • cto 3 months ago

    Hey Ian
    As a mortgage broker, what do you think might happen to HELOC’s if we remove certain tax payer back security,….like CMHC?
    be honest now…

    • Iain 3 months ago

      Don’t need CMHC for a HELOC.
      CMHC allows buyers to increase their leverage making home ownership available to a greater number of people. As for no debt, people would not be able to buy RE and increase their equity and net worth.

      • MH 3 months ago

        So you are telling people that their net worth will get increased if they take upon more debt? The irony is that this nonsense has been repeated so many times that there are many gullible out there taking it seriously.

        90% present of the people are financially illiterate (99% of the RE-horny) and they have absolutely no idea about the basics of the financial risk management. They should not be let anywhere near leverage “to increase their net worth” because these games sooner or later end up in financial annihilation in 99% of the cases.

        I can only guess how the thoughtful and responsible mortgage brokers feel reading this “you gotta lever up to get wealthy” BS written on behalf of their profession.

  • Tony 3 months ago

    Some ppls around me have HELOC about $100k – $150k, as downpayment for their Condo investment, that is 20-30% down for $400k – $500k condo 4 years ago, now they can get about $2000-$2500 rent/month just enough to cover the HELOC & Mortgage payment, as landlord they still have to pay property tax and condo fee about $800/month. But I think that’s the best way to save money for the retirement. BTW, now those condo price already went up for about 20-30% in 4 years.

    • David 3 months ago

      So they’re cash-flow negative? Sounds like a fantastic investment strategy. Rob Peter to pay Paul. Are you a financial advisor?

  • Tony 3 months ago

    Drive Uber 3 days or Dinning Out 1-2 times Less PER Month, not a WEEK, please read it carefully before you jump in. Also, I agree with you that real estate market is a Ponzi and our banking system as well, just face it, wall street will printing more & more money and bay street will follow them. compare to stock or keep cash in bank account, real estate still good tool and safe way to fight Ponzi Banking System and keep value of our hard earn money for the long run. hard to say how is the RE market in next 1-2 years, but in next 10 or 15 years house price should be double.

    • John 3 months ago

      Bruh, you are interpreting his comment wrong and look like a complete dullard in the process.

      Just stop.

  • CJRay 3 months ago

    It may just be a coincidence but there is a noticeable drop in people flocking to the Niagara outlet mall. For the last two years, weekend traffick from Toronto was crazy but this spring has seen a noticeable drop in traffic. I think people are tightening their spending. That is a good indication of the future for consumer spending. It started with luxury cars, now it’s everything. Hold on as this is just the start.

  • CJRay 3 months ago

    It may just be a coincidence but there is a noticeable drop in people flocking to the Niagara outlet mall. For the last two years, weekend traffic from Toronto was crazy but this spring has seen a noticeable drop in traffic. I think people are tightening their spending. That is a good indication of the future for consumer spending. It started with luxury cars, now it’s everything. Hold on as this is just the start.

  • cto 3 months ago

    Lain
    You’re a mortgage broker with a definite agenda.
    If you where honest, you as an honest experienced broker would say, “if CMHC was eliminated the housing market would collapse”, therefor no HELOCs. So…I know now that you are not just professional chiming in with knowledgeable advice but someone with an agenda.

    As for your reply about leveraging you principle residence with a HELOC to buy a condo investment…not sure if you providing this advice (as a professional mortgage broker)?
    God! These are the kind of antic’s that Poloz looses sleep over.
    Total gong show…

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