Why the sudden drop?
Debt associated with Canadian home equity lines of credit (HELOCs) fell to $259.73 billion in December, posting its largest drop for the month in several years.
Data from the Bank of Canada indicated that the national outstanding balance for this loan type fell by $369 million (or around 0.14%) versus November.
An analysis by Better Dwelling pointed to the federal government’s COVID-19 financial aid program as a major contributor to the trend.
“Growth for HELOC debt has been low since the government showered people with money,” Better Dwelling said. “The 1.58% rate of annual growth in December is lower than just a month before. Both the monthly and annual drops are the lowest for December since 1992 and 2015, respectively.”
But the majority of Canadians who benefited from these government programs, not just HELOC borrowers, may steer away from expensive new purchases for a little while longer. A December survey by Nanos Research Group found that 39% of Canadians are looking to prioritize repaying debt this year, while 37% said that they will be storing their extra funds in savings accounts.
Only 11% said that they will be making major purchases this year, with 13% looking to invest in real estate or the stock market.
Adriana Molina, communications manager at Credit Canada, said that this is largely due to the currently uneven pace of economic recovery.
“We’re finding people are holding onto their money because they don’t know how much money they can expect to have in the coming months,” Molina said recently.
