Australia’s Household Debt Crisis Looms

Australias Household Debt Crisis Looms

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’ even after his incessant warnings to the political elites in Canberra. He proceeded to implore the Reserve Bank to raise interest rates to avoid household debt getting further out of hand.

This bubble is easy to illustrate. Confidence! It’s the unfounded perception that Australia’s last 20 years of sustained economic growth will never experience any type of correction is most disturbing. Australia survived the GFC and a mining boom and bust. At the same time, Sydney and Melbourne house prices have not missed a beat or taken a backward step. Sadly, the decision makers and powerful elite in this country reside 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 out of control.

I acknowledge that this impending crisis isn’t just as straightforward as house prices in our two biggest cities, however the median house prices in these cities are ever rising and contribute considerably to overall household debt. The boffins in Canberra appreciate there’s an enflamed house market but appear to be loathed to take on any serious steps to correct it for fear of a house crash.

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

One of the signs that demonstrate the household debt crisis we are starting to see is the increase in the bankruptcy numbers throughout 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, we are discovering the destructive effects of house prices going backwards. Though it is not the fundamental cause of personal bankruptcies, it most certainly is a vital factor.

House prices going backwards is just part of the dilemma; the other thing is owning a home in Australia enables lenders to put you in a very different space as far as borrowing capacity. Simply put, you can borrow a lot 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 dramatically from the non-home owner to the home owner. Lending is based on 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 not too many people suggesting we slow down. If you want to know more about the looming household debt crisis then give us a ring here at Bankruptcy Experts Bunbury on 1300 795 575 or visit our website to find out more: www.bankruptcyexpertsbunbury.com.au

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