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 revealed that Australia is too late to avoid an ‘economic apocalypse’ even after his incessant warnings to the political elites in Canberra. He proceeded to insist the Reserve Bank to raise interest rates to prevent household debt getting further out of control.

This bubble is easy to describe. Confidence! It’s the erroneous perception that Australia’s last 20 years of continual economic growth will never experience any form of correction is most distressing. Australia survived the GFC and a mining boom and bust. In the meantime, Sydney and Melbourne house prices have not skipped 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 out of control.

I accept that this impending crisis isn’t just as straightforward 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 experts in Canberra appreciate there’s an overheated house market but appear to be despised to take on any severe efforts 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 especially, the mining bust has sent house prices spiralling downwards for years now.

Among one of the signs that confirm the household debt crisis we are starting to see is the rise in the bankruptcy numbers over 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 experts are discovering the harmful effects of house prices going backwards. While it is not the leading cause of personal bankruptcies, it definitely is a crucial 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 much more if you are a home owner than if you are not a home owner. I bankrupt people everyday and the amount of debt differs significantly from the non-home owner to the home owner. Lending is hinged on algorithms and risk, so I suppose if you own a home you’re more likely to have reliable income and less likely to end up bankrupt, so in turn 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 few people suggesting we slow down. If you need to know more about the looming household debt crisis then phone us here at Bankruptcy Experts Parramatta on 1300 795 575 or visit our website to find out more: www.bankruptcyexpertsparramatta.com.au

By | 2017-10-27T03:10:09+00:00 September 14th, 2017|Bankruptcy, Liquidation|0 Comments

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