Australia’s Household Debt Crisis Looms

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Australia’s Household Debt Crisis Looms

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Today in the news, former economics advisor John Adams said that Australia is too late to prevent an ‘economic apocalypse’ even after his repetitive warnings to the political elites in Canberra. He continued to request the Reserve Bank to raise interest rates to avoid household debt getting further out of control.

This bubble is simple to explain. Confidence! It’s the incorrect perception that Australia’s last twenty years of continued economic growth will never experience any sort of correction is most disturbing. Australia survived the GFC and a mining boom and bust. In the meantime, Melbourne and Sydney house prices have not missed a beat or taken a backward step. Sadly, the decision makers and powerful elite in this country are from these two cities, and see Australia’s economic obstacles through a completely different lens to the rest of the country. It’s a two-speed economy spiralling uncontrollably.

I concede that this looming crisis isn’t just as straightforward as house prices in our two largest cities, but the average house prices in these cities are ever rising and contribute considerably to total household debt. The authorities in Canberra appreciate there’s an overheated house market but seem to be detested to take on any substantial actions to correct it for fear of a property crash.

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

One of the signs that illustrate the household debt crisis we are beginning to see is the surge in the bankruptcy numbers over the entire country, particularly 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 market, our experts are observing the adverse effects of house prices going backwards. Though it is not the leading cause of personal bankruptcies, it undoubtedly is a vital factor.

House prices going backwards is just part of the challenge; the other thing is owning a home in this country enables lenders to put you in a very different space as far as borrowing capacity. To put it 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 significantly from the non-home owner to the home owner. Lending is based upon algorithms and risk, so I suppose if you own a home you’re more likely to have steady income and less likely to end up bankrupt, so subsequently you can borrow more. If you own a home in Melbourne or Sydney, 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 seems 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 contact with us here at Bankruptcy Experts Coffs Harbour on 1300 795 575 or visit our website for more information: www.bankruptcyexpertscoffsharbour.com.au

By | 2017-10-16T23:25:34+00:00 September 13th, 2017|Bankrupt, Liquidation|0 Comments

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