For the first time since the Great Recession, the number of Canadians unable to keep up with their debt is on the rise.
“The damage from lower oil prices is starting to show,” CIBC World Markets economist Benjamin Tal says in a new report, noting that the Prairie provinces are seeing the worst of it.
The total number of insolvencies in Manitoba and Saskatchewan jumped by 11 per cent in the six months ending in February 2015, the CIBC report said, while in Alberta they rose 6.5 per cent, “the worst showing since the recession." The province is likely to see "continued deterioration," CIBC predicts.
The oil price collapse has been better news for other parts of the country, where consumers have more spending cash in their pockets. Insolvencies in Ontario dropped by 7 per cent, while remaining flat in British Columbia, CIBC said. Quebec saw insolvencies rise by about 6 per cent.
Insolvencies include both personal bankruptcies and consumer proposals, an alternative to bankruptcy that involves the consumer renegotiating to pay only a portion of their debt.
Personal bankruptcies continue to decline in Canada, CIBC says, with the total number falling by 4.7 per cent in the six months to February. But consumer proposals have more than offset that, spiking by 9 per cent during the same period.
Most types of loans, including mortgages and car loans, continue to see declining delinquency rates, with one exception: personal lines of credit. Since those are often used to consolidate credit card debt, CIBC estimates it's credit card debt that Canadians are struggling with the most.
The rise in insolvencies comes as Canadians grapple with record levels of debt and uncertainty about the direction of interest rate changes.
Canadians now owe $1.63 of debt for every dollar of disposable income, up from around $1.00 of debt at the end of the 1990s.
That increase in debt has been manageable, so far, thanks to years of low interest rates that have lowered debt payments and allowed house prices, among other things, to grow faster than incomes.
The latest such stimulus came in the form of the Bank of Canada’s surprise rate cut in January, which economists say helped push mortgage rates to below 3 per cent.
But many say the long-running trend of lower interest rates is coming to a close. Economists surveyed by Bloomberg see the Bank of Canada raising interest rates by the middle of next year.
But interest rates in the U.S. are expected to start rising sooner, and that will affect Canadian mortgage rates as well, as Canadian fixed-rate mortgages are linked to U.S. bond markets.
Still, many economists see another rate cut in Canada’s future. In a report last week, Bank of America predicted the Bank of Canada would lower the key lending rate by another quarter percentage point at some point this year, even as the U.S. begins to raise rates.
"As the Fed hikes, the spillover effect of higher long-term rates in Canada will likely tighten financial conditions, reducing the need for any BoC policy tightening," BofA economist Emanuella Enenajor wrote.
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