Canadians might not be buying much real estate these days, but they’re borrowing against it. Statistics Canada (StatCan) data shows home equity lines of credit (HELOC) debt surged in October. Households tapped their home equity at one of the fastest rates in years, sending HELOC debt to a 6-year high.
Home Equity Line of Credit (HELOC)
A home equity line of credit (HELOC) lets homeowners borrow against their equity. There are a ton of similar equity loans that are often marketed in the same way. However, today we’re looking at the strictest definition. These are variable-rate loans that only require interest payments to carry. They also tend to be cheaper than unsecured credit lines, making them a weapon of choice for leverage.
Credit isn’t good or bad on its own. It’s how it’s used that can be a problem—and HELOCs are no different. Rising use can be a positive sign, signaling consumer confidence. A popular use is funding renovations and investment, indicating a positive outlook. It can be problematic when tapped to fuel speculation—a problem that pops up regularly.
Canadian HELOC Debt Hits Highest Level In Nearly 6 Years
The outstanding balance of Canadian household home equity lines of credit (HELOC) accounts: In billions of dollars.
Source: StatCan; Better Dwelling.
HELOC debt is climbing steadily in recent months. HELOC debt grew 0.30% (+$539 million) in October to $179.49 billion, the highest level in nearly 6 years. Households generally pulled back on this type of borrowing from 2013 to 2023. However, demand returned last year and has since maintained healthier levels of growth.
Canadian HELOC Growth Returns As Households Tap Home Equity
The outstanding balance of Canadian household home equity lines of credit (HELOC) accounts: 12 month change.
Source: StatCan; Better Dwelling.
Annual growth is accelerating, with some minor seasonal variance. HELOC balances have climbed 3.85% (+$6.65 billion) over the past year—modest, but high by recent standards. As mentioned, credit use rises with consumer and lender confidence, fueling consumption. After all, when times are good, both groups are confident in the outlook and the ability to repay debts. That’s not what’s happening now.
Today’s conditions resemble the investor-fueled borrowing seen in 2017. At the time, regulators flagged the issue largely concentrated in Greater Toronto. In both cases, home sales were soft, but pre-construction completions came in hot. With the largely investor-owned market facing financing risks, it’s hard to miss the warning signs.
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