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 said that Australia is too late to prevent an ‘economic apocalypse’ even after his repeated warnings to the political elites in Canberra. He went on to advise the Reserve Bank to raise interest rates to prevent household debt getting further out of hand.

This bubble is easy to illustrate. Confidence! It’s the misled perception that Australia’s last 20 years of continued economic growth will never encounter any form of correction is most troublesome. 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 are from these two cities, and see Australia’s economic obstacles through an entirely different lens to the rest of the country. It’s a two-speed economy spiralling uncontrollably.

I accept that this impending crisis isn’t just as straightforward as house prices in our two largest cities, however the median house prices in these cities are ever rising and contribute greatly to overall household debt. The experts in Canberra recognise there’s an inflamed house market but appear to be loathed to take on any genuine measures to correct it for fear of a property crash.

As far as the remainder of the country goes, they have an entirely different set of economic concerns. For Western Australia and Queensland particularly, the mining bust has sent house prices sinking downwards for years now.

One of the indicators that demonstrate the household debt crisis we are beginning to see is the increase in the bankruptcy numbers throughout the entire country, especially 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 firm are observing the adverse effects of house prices going backwards. Although not the prime cause of personal bankruptcies, it 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. 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 extent of debt fluctuates significantly 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 consistent income and less likely to end up bankrupt, so consequently 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 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 appears 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 get in touch with us here at Bankruptcy Experts Frankston on 1300 795 575 or visit our website to find out more: www.bankruptcyexpertsfrankston.com.au

By | 2017-10-27T00:51:48+00:00 September 14th, 2017|Bankruptcy, Liquidation|0 Comments

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