Australia’s Household Debt Crisis Looms
09
September
2017

Today in the news, former economics advisor John Adams advised that Australia is too late to stop an ‘economic apocalypse’ in spite of his repeated warnings to the political elites in Canberra. He went on to insist the Reserve Bank to raise interest rates to avoid household debt getting further out of control.

This bubble is very easy to understand. Confidence! It’s the deluded perception that Australia’s last 20 years of continual economic growth will never experience any sort of correction is most disturbing. Australia survived the GFC and a mining boom and bust. Meanwhile, Sydney and Melbourne house prices have not skipped a beat or taken a backward step. Regrettably, the decision makers and powerful elite in this country live in these two cities, and see Australia’s economic challenges through a totally different lens to the remainder of the country. It’s a two-speed economy spiralling uncontrollably.

I accept that this impending crisis isn’t just as straightforward as house prices in our two biggest cities, but the median house prices in these cities are ever rising and contribute substantially to overall household debt. The specialists in Canberra realise there’s an enflamed house market but appear to be loathed to take on any substantial efforts to correct it for fear of a housing crash.

As far as the remainder of the country goes, they have a totally different set of economic priorities. For Western Australia and Queensland specifically, the mining bust has sent real estate prices spiralling downwards for years now.

One of the indicators that illustrate the household debt crisis we are beginning to see is the surge in the bankruptcy numbers across the entire country, specifically in the March 2017 quarter.

(source: https://www.afsa.gov.au/about-us/newsroom/media-release-regional-personal-insolvency-statistics-march-quarter-2017).

In the insolvency sector, our team are discovering the incapacitating effects of house prices going backwards. Although not the primary cause of personal bankruptcies, it undoubtedly is an integral factor.

House prices going backwards is just part of the issue; the other thing is owning a home in Australia enables lenders to put you in a very different space as far as borrowing capacity. Put simply, you can borrow far more if you are a home owner than if you are not a home owner. I bankrupt people everyday and the extent of debt fluctuates substantially from the non-home owner to the home owner. Lending is founded on algorithms and risk, so I suppose if you own a home you’re more likely to have consistent income and less likely to wind up bankrupt, so consequently you can borrow more. If you own a home in Sydney and Melbourne, you’re a safer risk than if you own a home in Mackay, simply because in one area the median house prices are booming and the other is going backwards, as it’s been doing so for years.

In conclusion, it appears we are running into a wall at full speed, and there are very few people suggesting we slow down. If you would like to know more about the looming household debt crisis then get in touch with us here at Bankruptcy Experts Toowoomba on 1300 795 575 or visit our website for additional information: www.bankruptcyexpertstoowoomba.com.au

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