Homeowners in Canada’s hottest housing markets have been taking advantage of skyrocketing property values to go on a spending binges, according to National Bank.

“The sharp appreciation in home prices in Ontario and British Columbia fueled by extremely accommodative monetary policy have undoubtedly encouraged some homeowners to tap into their home equity in order to support a spending binge,” writes National Bank Chief Economist Stéfane Marion.

In Canada there are currently about three million active home equity lines of credit (HELOCs), says National Bank, the country’s sixth largest bank, citing the Financial Consumer Agency of Canada.

On average, the outstanding balance on Canadian HELOCs is $70,000, and overall the loans account for about 45% of consumer credit.

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Recently, that share has been increasing for the first time since 2009, when HELOCs accounted for about 57% of consumer debt, a high since at least 2000.

“We estimate that HELOCs at Canadian chartered banks have surged by close to $20 billion in the past year, accounting for close to 60% of the growth in total consumer credit,” notes Marion.

Households taking advantage of home equity lines of credit is fueling a broader borrowing “frenzy,” says National Bank. Last quarter, consumer-credit grew at the fastest rate since 2010.

While National Bank doesn’t look into what Canadians are using HELOCs to pay for, earlier this year, one Toronto-based mortgage agent told BuzzBuzzNews that homeowners were increasingly using HELOCS to help their children finance their own home purchases.

Overall, the racking up of consumer credit is double-edged, the bank suggests.

While it supports near-term GDP growth, increased debt poses risks to the Canadian financial system’s stability.

“So, the resurgence in consumer credit may ring some alarm bells at the Bank of Canada which, as you may recall, continues to see household indebtedness and housing market imbalances as ‘the most important vulnerabilities for the Canadian financial system,’” Marion adds.

National Bank : Hot Canadian Real Estate Markets are Helping Fuel Spending Binges by Josh Sherman | Buzz Buzz Home