Canada’s debt problem has pressed the pause button on consequences over the past two years, but it’s back. Data from the Office of the Superintendent of Bankruptcy in Canada (OSB) shows a sharp rise in consumer bankruptcies in the second quarter of 2022. The province’s largest cities generated most of the growth, even offsetting declines seen in some smaller cities. It’s easy to attribute that to higher interest rates, but it’s too early to make an impact, as interest rates were raised on a quarterly basis. Consumers have already been pushed to the limit, and the effect of higher prices is still coming.
Consumer bankruptcies in Ontario jumped 16.5% in the second quarter
Consumer bankruptcies in Ontario are on the rise again. The county saw 8,817 bankruptcy filings in the second quarter of 2022, an increase of 12.8% from the previous quarter and 16.5% from a year ago. It’s a sudden increase, in sharp contrast after the first quarter of 2022 showed a decline in consumer bankruptcies. Perhaps to make up for lost time.
Canadian Consumer Insolvency Growth Q2 2022
Annual change in consumer insolvency filings for the second quarter of 2022.
Source: OSB; Better housing.
Toronto and Hamilton lead consumer insolvency files
Broken down by census metropolitan area (CMA), Toronto accounted for the lion’s share of filings, as usual. The region saw 3,305 filings in the second quarter of 2022, up 13.6% from the previous quarter. Compared to last year, it’s up 16.0%, similar to the rate across the county.
Hamilton was unusually over-representative when it came to the annual growth of consumer insolvency filings. The region saw 462 filings in the second quarter of 2022, up just 3.8% from the previous quarter. However, it has seen a 25.2% increase compared to last year. It may be nothing, but it is worth noting that the annual growth is about 10 points higher than the average.
The biggest growth in bankruptcies was in small towns
Growth has been greater in smaller towns – some of which have seen a significant increase in the cost of living recently. The three largest markets for annual growth were St. Catharines-Niagara (+41.5%), Sudbury Sulfur (38.6%), and Windsor (28.9%). Both Niagara and Windsor have shown explosive price growth over the past two years.
Not all cities in the county have seen growth, and fillings have shrunk in some
Not all regions are seeing a small increase in consumer filings in Ontario. The last three centers of growth were Thunder Bay (-18.3%), Guelph (-3.7%) and Kingston (-0.9%). Guelph has had some of the largest home price growth in the country, surpassing $1 million for a typical home at one point, so the trend isn’t exclusive to higher housing costs. Although the high housing costs certainly do not help.
We know those high interest rates! While interest rates are rising in the second quarter, they haven’t had much of an impact. The increase could have had little impact on financing costs, with the bulk of the rate hike not taking place until July. It can be a deciding factor because most people who see an oncoming train will move out of the way if possible. However, it was too early to be the deciding factor.
The industry had widely been expecting an increase in consumer bankruptcies after lenders paused debt. Even consumers who would need to file for bankruptcy under normal circumstances were given a little breathing room, and at least cheap credit to delay the issue. With that in mind, the upside at the moment could be the backlog offsetting process as more people put their finances in order. If persistent high growth appears, this could be a problem for lenders.