Canada’s HELOC balance growth at its weakest level in 12 months

Canadians are steadily moderating their HELOC borrowing, with loans secured by residential real estate reaching their slowest rate of growth in a year.

September data from the Office of the Superintendent of Financial Institutions showed that Canada’s total balance of debt tied to home equity reached $303.93 billion during that month.

However, while this volume represented yet another new record high, month-over-month growth was just at 0.17%. And the 3.98% annual increase was the lowest in 12 months, real estate think-tank Better Dwelling stated.

Most of the slowdown can be attributed to declines in personal loan growth. In September, personal loans accounted for $270.28 billion of the total volume, which was a miniscule 0.08% higher monthly. The 2.65% annual increase was also the weakest since the start of 2017.

“Canadians are borrowing home equity at a slower pace, which gives a mixed takeaway. Since a large portion of consumer spending was HELOC driven, the economy might experience a hiccup here,” Better Dwelling projected. “On the other hand, lower levels of debt mean households would be more resilient to economic shock.”

However, the steady extraction of home equity over the last few years might lead to serious consequences for the country’s financial system further down the line.

The danger especially increases when people continue to extract home equity while home prices grow, the real estate information portal stated during the third quarter of this year.

“This is a problem if the collateral effect contributes meaningfully. If home prices fall, the equity-based spending disappears. Combine that with slower sales, which leads to lower spin-off economic activity,” Better Dwelling explained.

“A decline in home prices is no longer just a hit to paper-based wealth. It has a significant impact on the general economy, and employment.”

MBN

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