Canada’s debt problem hit the pause button on consequences for the past couple years, but it’s back. Office of the Superintendent of Bankruptcy Canada (OSB) data shows a sharp uptick for consumer insolvencies in Q2 2022. The province’s biggest cities carried most of the growth, even making up for the drops seen in some smaller cities. It’s easy to attribute this to rising interest rates, but it’s too early for an impact, since it was the quarter rates were raised. Consumers were already being pushed to the limit, and the impact from rising rates is still to come.
Ontario Consumer Insolvencies Jumped 16.5% Higher In Q2
Ontario consumer insolvencies are picking up once again. The province saw 8,817 insolvency filings in Q2 2022, up 12.8% from the previous quarter and 16.5% from last year. It’s a sudden increase, strongly in contrast after Q1 2022 showed a decline in consumer insolvencies. Making up for lost time, perhaps.
Canadian Consumer Insolvency Growth Q2 2022
The annual change in consumer insolvency filings for Q2 2022.
Source: OSB; Better Dwelling.
Toronto & Hamilton Led For Consumer Insolvency Filings
Breaking it down by Census Metropolitan Area (CMA), Toronto represented the lion’s share of filings, as usual. The region saw 3,305 filings in Q2 2022, up 13.6% from the previous quarter. Compared to last year it’s 16.0% higher, similar to the rate across the province.
Hamilton was unusually overrepresented when it came to annual growth of consumer insolvency filings. The region saw 462 filings in Q2 2022, up just 3.8% from the previous quarter. However, it’s seen a 25.2% increase compared to last year. It could be nothing, but it’s worth mentioning since annual growth is nearly 10 points higher than average.
The Biggest Growth For Insolvencies Was In Small Cities
Growth was biggest in small cities — some of which saw a big increase in the cost of living recently. The top three markets for annual growth were St. Catharines-Niagara (+41.5%), Greater Sudbury (38.6%), and Windsor (28.9%). Niagara and Windsor both showed massive price growth over the past couple of years.
Not All Cities In The Province Saw Growth, Filings Shrunk In Some
Not all regions are seeing an uptick in consumer filings in Ontario. The bottom three for growth were Thunder Bay (-18.3%), Guelph (-3.7%), and Kingston (-0.9%). Guelph had some of the biggest home price growth in the country, it breached $1 million for a typical home at one point, so the trend isn’t exclusively higher housing costs. Though higher housing costs certainly don’t help.
We know, those darn higher interest rates! While interest rates are rising in the second quarter it wouldn’t have made much impact. The increase would have only had a minimal impact on financing costs, with the bulk of the rate hike not even occurring until July. It can be a deciding factor since most people that see a train coming would move out of the way if possible. However, it was too early to be the deciding factor.
The industry had widely expected an uptick in consumer insolvencies after lenders hit the pause on debt. Even consumers who would have needed to file for an insolvency in normal conditions got a little breathing room, and cheap credit to at least delay the issue. That in mind, an uptick right now can be the backlog clearing as more people get their finances in order. If persistent high growth appears, then it might be a problem for lenders.
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It should be noted insolvency filings also underreport the issue of household debt failure. Our bank (a Big Six) doesn’t pursue small debts these days, and many people never file a filing but just ignore the actual situation and hope it goes away.
In a way, insolvency filings are better than silent failure since it usually involves people mitigating problems before they get too bad.
Useful to know! Thanks Tom.
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