Housing Loans to Boost Real Estate in T.O.

Canadians, buoyed by a budding housing market recovery, took on more debt in June as they tapped banks for a variety of loans tied to real estate, says a report released yesterday by TD Economics.

Total bank-issued credit to households grew by 1 per cent in June from May. On a year-over-year basis, household credit increased by 9.9 per cent.

Although the recession is taking a toll on consumers, relatively low interest rates helped whet their appetite for more housing-related debt. That helped drive home sales last month, but economists warn demand for mortgages will likely diminish during the rest of 2009.

The report, citing data from the Bank of Canada and the Canada Mortgage and Housing Corp., said much of June’s lending growth was fuelled by “loans secured on real estate.” Specifically, mortgages grew by 0.8 per cent from May and 8 per cent compared with June 2008.

Lines of credit, including popular Home Equity Lines of Credit, were up 2 per cent month over month and more than 21 per cent year over year. There was also more growth in personal loans and credit card balances. “While having risen from lows during April and May, interest rates on fixed-term mortgages in June remained at near 30-year record lows,” the report said. “Encouraged by these low rates, home buying has been brought forward.”

Economists Grant Bishop and Craig Alexander, the report’s authors, noted that countrywide sales of existing houses were up 18 per cent year-over-year in June, while average resale prices jumped by 3.6 per cent during that time. “However, since June’s housing sales are unsustainable and new home construction will be weak during 2009, demand for mortgage credit should wane in the months ahead.”

Last week, the Bank of Canada suggested that low borrowing costs for consumers should help bolster the economic recovery. It also warned, however, that consumers are likely to “remain cautious” because of rising unemployment.

TD also said yesterday its financial stress index for Canada recorded “a minor decline” last week.