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September 13, 2017 Comments Closed

Australia’s Household Debt Crisis Looms

Posted by:Bankruptcy Specialist onSeptember 13, 2017

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

 

This bubble is very simple to understand. Confidence! It’s the misled perception that Australia’s last twenty years of sustained economic growth will never experience any type of correction is most disconcerting. Australia survived the GFC and a mining boom and bust. Meanwhile, Melbourne and Sydney house prices have not skipped a beat or taken a backward step. Regrettably, the decision makers and powerful elite in this country are from these two cities, and see Australia’s economic hurdles 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 emerging 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 greatly to total household debt. The authorities in Canberra understand that there’s an overpriced house market but appear to be detested to take on any serious actions to correct it for fear of a housing crash.

 

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

 

Among one of the signs that illustrate the household debt crisis we are starting to see is the rise in the bankruptcy numbers throughout 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 market, our experts are examining the adverse effects of house prices going backwards. Though it is not the predominant cause of personal bankruptcies, it naturally is a critical factor.

 

House prices going backwards is just part of the challenge; 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 much 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 founded on 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 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 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 would like to know more about the looming household debt crisis then call us here at Bankruptcy Experts Bendigo on 1300 795 575 or visit our website for more information: www.bankruptcyexpertsbendigo.com.au

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