Canadian real estate sales are up, mortgage credit is growing, but home equity loans are slow? Office of the Superintendent of Financial Institutions (OSFI) filings show debt secured by homes reached a new high in August. The increase in debt is getting slower though, as the segment of credit growth tapers quickly.
Loans Secured By Residential Property
Loans secured by residential property, are when homeowners pledge home equity as collateral. If the borrower doesn’t pay the loan back, the lender can recoup losses by selling the collateral. Since the lender has a lower risk, they can charge the borrower a much lower interest rate. The most common form of this loan is a home equity line of credit (HELOC), but other similar types also exist.
Overall, they seem like a pretty sweet deal if used responsibly. The one issue is when real estate prices move quickly, the amount of equity one has can fluctuate. In the event real estate prices ever fall, this amplifies risk for homeowners. They not only lose home value, the existing debt is still just as large. This could leave borrowers with less equity than they expected.
Canadians Borrowed Owe Over $303 Billion Secured By Homes
The balance of loans secured by residential property made a small monthly increase. The balance reached $303.41 billion in August, up 0.08% from a month before. The increase works out to 4.27%, when compared to the same month last year. The rise was small, but it was still an increase, pushing it to a new record high.
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 annual pace of growth has been tapering, and doing so very quickly. The 12-month growth in August, is the fourth consecutive month of deceleration. The trend has been towards lower since April, and is now at the lowest level of growth since July 2018. Generally, the deceleration of growth is across the board for both major segments.
Over $270 Billion of The Total Is For Personal Loans
Personal loans represent the vast majority of the total, and reached a new all-time high. The balance reached $270.07 billion in August, up 0.15% from the month before. This represents a 3.06% increase compared to the same month last year. The 12-month growth rate has been on the slide since peaking in December 2018, and is at the lowest level since February 2017. Now that’s a very quick drop in growth.
Personal Loans Secured With Residential Real Estate
The total of personal loans, secured with residential real estate.
Source: Regulatory Filings, Better Dwelling.
Over $33 Billion Is For Business Loans
The remaining balance is for business loans, which dropped on the month. Business loans secured by real estate fell to $33.34% in August, down 0.46% from the month before. This represents a 15.27% increase compared to the same month last year. Worth mentioning that while a drop isn’t great, this segment of loans is fairly volatile.
Business Loans Secured With Residential Real Estate
The total of business loans, secured with residential real estate.
Source: Regulatory Filings, Better Dwelling.
HELOC debt is still growing, but it’s slowing down fast. The good news is lower debt levels will make households more resilient to economic shocks. The bad news is, this slows down consumer spending, since the amount isn’t trivial.
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These numbers personal loans and business loans secure by real estate does not include mortgages..
If you look at the loan curve it rises dramatically after 2016.
This indicates that 2016 was the peak in house prices..and flipping houses to substitute lack of income ended in 2016.. but since then HELOC loans have been the main source of income for their lifestyles.
This will eventually end badly..
Our economy needs the housing prices to rise forever so people can keep maxing out their HELOCS every two years to buy that shiny new BMW and remodel their kitchen. The lenders and all their agents need you to do this in order to keep their jobs. The trades and reno contractors need this. Home Depot and Lowes need this. The Real estate crooks are in dire need of it. You are irresponsible, selfish peoplekind if you do not have a maxed out HELOC.