Australia’s Household Debt Crisis Looms

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Australia’s Household Debt Crisis Looms

 

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

This bubble is simple to spell out. Confidence! It’s the deluded perception that Australia’s last twenty years of sustained economic growth will never experience any form of correction is most disconcerting. 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 Australia reside 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 acknowledge that this impending crisis isn’t just as simple as house prices in our two biggest cities, however the average house prices in these cities are ever rising and contribute considerably to overall household debt. The specialists in Canberra are aware of an enflamed house market but appear to be repugnant to take on any severe 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 priorities. For Western Australia and Queensland especially, the mining bust has sent real estate prices spiralling downwards for years now.

Among one of the signs that demonstrate the household debt crisis we are beginning to see is the increase 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 company are inspecting the harmful effects of house prices going backwards. Even though it is not the leading cause of personal bankruptcies, it surely is an integral factor.

House prices going backwards is just part of the issue; the other thing is owning a home in this country 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 differs substantially from the non-home owner to the home owner. Lending is based upon 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 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 wish to know more about the looming household debt crisis then get in touch with us here at Bankruptcy Experts Wyong on 1300 795 575 or visit our website for additional information: www.bankruptcyexpertswyong.com.au

By | 2018-07-06T05:10:16+00:00 September 17th, 2017|Bankrupt, Blog|0 Comments

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