Canadian real estate leverage has been an increasing concern, and it it’s growing. Filings from Office of the Superintendent of Financial Institutions (OSFI), the federal regulator for banks, show that loans secured by real estate showed huge growth in September. In fact, these loans are now at a record high, and are printing record growth.
The total of loans secured against residential real estate for business and non business purposes is booming in 2017. Analysis of OSFI data shows $279.64 billion in loans in September, up $25.4 billion from the same month last year. That’s 9.92% growth, which is just off the peak of 12.10% established in June 2017. This year is the first year to see growth above 5%, in the 5 years of filings OSFI provided. The huge growth represents a significant increase, but some of these loans are being used for productive purposes. Let’s break it down.
When people say “good debt,” this is the kind of debt they are typically referring to – borrowing for business. In September, banks held $31.68 billion of loans for business purposes, secured by residential real estate. That’s a massive 51.58% growth from the year before, which is just off peak growth established earlier this year. While the growth is huge, it is just a fraction of the total debt here.
Personal loans secured by real estate are experiencing record growth. These are the loans that we have no idea what they did with the money. These can be anything from renovation financing, to buying second homes, or even possibly using home equity to buy bitcoin – no one’s quite sure. At the end of September, banks held $248.95 billion in personal loans secured by residential real estate, a 6.91% increase from last year. This is the highest annual growth observed in the OSFI filings.
Home prices fluctuating is normal and most people just weather the storm, stay put and then sell later if at all…i.e. I am a middle class person and my retirement is tied to my house because I got fleeced in the last bad recession. I took some change out to help the kiddies if there is looming price depression won’t everyone have a collective freakout and accelerate a drop in housing prices? Thoughts?
Typically leverage capitulates movements, so the drop would be further down than it would naturally be. Expected, since market prices regress to the mean, and never actually sit on the mean. The longer it takes new buyers to capitalize however, may delay a recovery.
Housing in a big city isn’t usually a balance sheet loss, but an economic loss carried over time. If your house is the same price 10 years down the line, you could have rented and banked the difference. Then bought it with your fresh gains.
Could, should, would. Those that argue for renting and banking the difference, then buying when the market is down is just a convoluted way of trying to time the market, and that’s not possible to do. If your house is the same price 10 years from now, that’s unfortunate, however you only have 15 years of mortgage payments left while the newcomer is paying exactly what you did 10 years ago but has 25 years of payments to look forward to. In the interim, you’ve enjoyed 10 years in a home of your own, customizing and living on your own terms, while the renter has been dealing with cockroaches, mice, rats, bedbugs, noisy stinky apartment dwellers, landlords that don’t fix anything, and drafty windows.
As well, renter will be paying more monthly every year the rent increases. The buyer could be paying the same or less than previously for mortgage interest when the mortgage is renewed which maintains the same monthly cost or lowers it.
No, not the same. The issue in the US was related to sub-prime borrowers; the dregs (yes I’m a prick) who shouldn’t have been able to get a mortgage at all. The primary mortgage,not secondary debt, was the fatal flaw. This is much worse. There are many people with great credit and a ‘path to retirement’ who thought helping out their children/grandchildren was a good idea and if they can’t get out it will have huge ramifications.