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 advised that Australia is too late to avoid an ‘economic apocalypse’ in spite of his repetitive warnings to the political elites in Canberra. He continued to urge the Reserve Bank to raise interest rates to avoid household debt getting further out of control.

This bubble is very easy to spell out. Confidence! It’s the false perception that Australia’s last twenty years of continued economic growth will never experience any kind of correction is most distressing. Australia survived the GFC and a mining boom and bust. At the same time, 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 reside in these two cities, and see Australia’s economic problems through a completely different lens to the rest of the country. It’s a two-speed economy spiralling out of control.

I recognise that this looming crisis isn’t just as simple as house prices in our two largest cities, but the median house prices in these cities are ever rising and contribute substantially to overall household debt. The specialists in Canberra are aware of an overheated house market but seem to be despised to take on any genuine actions to correct it for fear of a housing crash.

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

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

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

In the insolvency market, our team are discovering the incapacitating effects of house prices going backwards. Even though it is not the predominant cause of personal bankruptcies, it definitely is a decisive factor.

House prices going backwards is just part of the dilemma; the other thing is owning a home in Australia allows lenders to put you in a very different space as far as borrowing capacity. Simply put, you can borrow much more if you are a home owner than if you are not a home owner. I bankrupt people everyday and the level of debt differs dramatically 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 reliable income and less likely to wind up bankrupt, so consequently 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 due to the fact that 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 wish to know more about the looming household debt crisis then call us here at Bankruptcy Experts Mackay on 1300 795 575 or visit our website for more information: www.bankruptcyexpertsmackay.com.au

By | 2017-10-27T03:27:20+00:00 September 14th, 2017|Article, bankruptcy, blog|0 Comments

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