New mortgages surge to record high, raising red flag about HELOC growth
House-hungry Canadians drove new mortgage volumes up to a quarterly high, soaring 60.2 per cent to more than 410,000 in the second quarter from the year before, according to new data from credit company Equifax Canada.
The size of the average new mortgage loan also jumped by 22.2 per cent from last year to more than $355,000.
While new mortgage growth has been strong in major markets across the country, British Columbia saw the biggest increase, rising 85.7 per cent from last year.
The mortgage surge helped push overall consumer debt to $2.15 trillion, up three per cent from the previous quarter and up 7.5 per cent from the year before.
How many people in these hot markets are paying their mortgages with equity loans?
At this point, what difference does it make?
It really does not make a difference, as the whole house of cards will burn down or fall down. A society populated by very stupid people get to where we are.
Something big has been brewing in Canada for years. Can’t believe how long the balls stay in the air.
Get prepared.
I haven’t bothered to look it up but can someone tell me how much it costs to service a $355,000 mortgage and what income level is required???? If you can do it working for the golden arches, we got a problem.
Does it matter?
The economy “grows from the heart” don’t ya know.
I don’t think about monetary policy.
The budget will balance itself.
$355,000 takes $1500/month at a 2% interest rate; 12 x 1500 = $18,000 of payments.
If rates go up to 4% at renewal, $355,000 takes $1880/month (25% increase in payments)
If rates go up to 6% at renewal, $355,000 takes $2290/month (52% increase in payments)
If rates go up to 8% at renewal, $355,000 takes $2730/month (82% increase in payments)
Political solution: keep printing that money at an accelerating rate!
Mike,
You are assuming the buyer keeps to the original end date for the mortgage.
it is true a mortgage of $355,000 takes $1500/month at a 2% interest rate; 12 x 1500 = $18,000 of payments.
at renewal you owe 297,000. If you take another 25 year mortgage at 4% your payments are %1570 so only a 5% increase in the payment. Sure you are paying another 5 years but payment is manageable.
At 6% the payment is $1915 or about 27% this starts to hurt.
At 8% the payment is $2290 or about 52%
If they can keep interest from going up too quickly they can keep people in debt longer. If they let it jump people will walk away.
Thanks Mike. A Mickey D worker ain’t buying one. Of course 355,000 is the bottom end now . New houses where I live start a half a million for one part of a triplex. I live in what would be called a small town.
https://twitter.com/PierrePoilievre/status/1432726018284998663
“The economy contracted 1.1 per cent on an annual basis, Statistics Canada reported on Aug. 31.”
“It’s a jaw-dropper,” BMO chief economist Douglas Porter told Reuters. “Completely different from what Statistics Canada was estimating and what every economist was predicting.”
“The data missed economists’ estimates, which had expected growth of 2.5 per cent for the quarter, and dampened initial optimism about broader business re-openings as much of the country exited the wave of the COVID-19 pandemic.”
l promised my critters they would always have a home. l must stay where l am to do that.
if it costs me 100 grand to keep the promise, so be it. they are worth it. our own dog lover Kate can explain how that works.
I understand how you feel.
The last dog in the family outlived both of my parents. After my father died, I inherited the critter I’ve come to call my canine step-brother, a short-haired miniature dachshund. For the first few weeks after that dreadful day, my main priority was to find the little guy a proper home as I couldn’t take care of him in my apartment (no dogs allowed).
To make a long story short, he had been staying with someone who works at the local vet clinic and who knew him because she examined him when my father brought him in for a check-up. Imagine my relief when I received a phone call in which she said, “We’d like to adopt him.” “Let me think about it–yes.”
I couldn’t have asked for a better situation for him. She’s still at the clinic. She and her husband have property north of town, so there’s lots of room for him to run around and explore. He has doggie friends to play with.
Part of the arrangement is that he can stay with me at the house I inherited when I’m back in town to work on settling my father’s estate. We end up having a good time together, because he’s happy to be back in his old domain. He’s equally as happy when she comes to pick him up.
Yeah, our critters are worth the time, expense, and worry.
$355,000 ? That’s it?
Where is the other $400-500K coming from for that home in the 905?
HELOCs are growing because long term homeowners with YUGE equity, can use it as a short term borrowing tool, at CHEAP rates, less than 3%, vs begging on your knees at the bank for $20k and waiting 2 weeks for approval.
It also beats paying 7% for car loans, or high rates on cards.
HELOCs are very good and useful tools, for the right people, but they can be the road to ruin for the careless.
They’re actually quite valuable and flexible if used properly in a well managed mortgage portfolio.
Imo rates can go 2% higher with some damage while not destroying medium to high equity realty owners, but beyond that there will be a financial bloodbath.
But with plenty of opportunity for the wise, whom the statists will politically retool as the lucky.
Not the statists of course, just you. They have important work to do on you.
Get used to the term “financial repression”.
One aspect of this approach is that OSFI will prevent all federally regulated financial institutions from lending through regulation and stress tests. Interest rates will remain low because no government can afford to pay the interest on the accumulated debt without significantly increasing taxes or cutting spending.
But average Canadians won’t have access to cheap capital. Inflation will rise, but be held in check somewhat by of lack of demand. Stagflation here we come. It will be a delicate balance to achieve and the scheme is not resilient. One or two pushes, a couple more variants or an attack, and all bets are off.