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Australia’s Household Debt Crisis Looms

Today in the news, former economics advisor John Adams suggested that Australia is too late to stop an ‘economic apocalypse’ regardless of his continual warnings to the political elites in Canberra. He went on to request the Reserve Bank to raise interest rates to stop household debt getting further out of hand.

This bubble is very simple to spell out. Confidence! It’s the misled perception that Australia’s last 20 years of continued economic growth will never encounter any type of correction is most distressing. 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. Unfortunately, the decision makers and powerful elite in this country live in these two cities, and see Australia’s economic hurdles through a completely different lens to the rest of the country. It’s a two-speed economy spiralling out of control.

I concede that this looming crisis isn’t just as straightforward as house prices in our two largest cities, however the average house prices in these cities are ever rising and contribute strongly to overall household debt. The experts in Canberra realise there’s an overpriced house market but seem to be reviled to take on any severe efforts 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 priorities. For Western Australia and Queensland especially, the mining bust has sent house prices spiralling downwards for years now.

One of the warning signs that confirm the household debt crisis we are starting to see is the surge in the bankruptcy numbers across the entire country, particularly 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 sector, our experts are observing the terrible effects of house prices going backwards. Though it is not the predominant cause of personal bankruptcies, it definitely is a pivotal 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. 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 quantity of debt differs 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 reliable income and less likely to wind up bankrupt, so subsequently 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 few people suggesting we slow down. If you need to know more about the looming household debt crisis then call us here at Bankruptcy Experts Cassowary Coast on 1300 795 575 or visit our website for additional information: www.bankruptcyexpertscassowarycoast.com.au