Canadian HELOC Debt up 500% since the Year 2000

Steve Saretsky -

Another interesting piece today from Macleans. And perhaps only highlighting something that I will continue to emphasize. Canada is mired in a debt binge.

Recent data highlights Canada has accumulated more private debt in the past 5 years than any other advanced economy. Record low interest rates are allowing borrowers to take on heaping amounts of debt (debt to income has increased to 169%) creating an inevitable problem when interest rates begin to rise.

Scott Terrio, a debt consultant, says the situation is a full blown “extend and pretend” meaning borrowers are just continuously refinancing or taking on more and more debt in order to sustain their lifestyle.

Since the year 2000, HELOC debt has grown from $35 billion to $211 billion in 2016. Last year, Canadians used $11.6 billion in HELOC’s to pay down existing debt. In other words, they’re taking on new loans to pay down existing loans. Akin to a Ponzi scheme, more new loans are required to keep the game going.

HELOC debt Canada
HELOC Debt in Canada

If you haven’t read the book ‘Manias, Panics, and Crashes‘ by Charles Kindelberger I highly recommend it. The famed economist and historian, highlights the role of credit in every boom.

“A follow-the-leader process develops as firms and households see that others are profiting from speculative purchases. ‘There is nothing as disturbing to one’s well-being and judgment as to see a friend get rich.’ Unless it is to see a nonfriend get rich. Similarly banks may increase their loans to various groups of borrowers because they are reluctant to lose market share to other lenders which are increasing their loans at a more rapid rate.”

Well, here’s CIBC where uninsured mortgage growth in the past year is nearly triple that of any other major bank.

CIBC uninsured mortgage growth
CIBC Uninsured mortgage growth

Banks are completely out of control, handing out more and more loans and further indebting Canadians. It seems as if they don’t even care if it’s secured against Real Estate anymore. Here’s unsecured personal lines of credit in BC.

unscured personal lines of credit BC
Unsecured personal lines of credit in BC.

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The Saretsky Report. December 2022