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 proposed that Australia is too late to prevent an ‘economic apocalypse’ regardless of his incessant warnings to the political elites in Canberra. He continued to request the Reserve Bank to raise interest rates to prevent household debt getting further out of control.

This bubble is simple to spell out. Confidence! It’s the incorrect perception that Australia’s last twenty years of sustained economic growth will never encounter any type of correction is most worrying. 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. Unfortunately, the decision makers and powerful elite in Australia are from 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 uncontrollably.

I concede that this emerging crisis isn’t just as straightforward as house prices in our two biggest cities, however the median house prices in these cities are ever rising and contribute strongly to total household debt. The boffins in Canberra appreciate there’s an overheated house market but seem to be detested to take on any focused actions to correct it for fear of a property crash.

As far as the remainder of the country goes, they have a completely different set of economic priorities. For Western Australia and Queensland especially, the mining bust has sent real estate prices sinking downwards for years now.

Among one of the indicators that demonstrate the household debt crisis we are beginning to see is the rise in the bankruptcy numbers over 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 market, we are encountering the disastrous effects of house prices going backwards. While it is not the leading cause of personal bankruptcies, it most certainly is a significant 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. Simply put, 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 amount of debt differs considerably 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 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 very 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 Sunshine Coast on 1300 795 575 or visit our website for additional information: www.bankruptcyexpertssunshinecoast.com.au

By | 2017-10-11T06:15:15+00:00 September 14th, 2017|Bankruptcy, Liquidation|0 Comments

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Director of Fresh Start Solutions and specialises in helping people free themselves from overwhelming debt. Whether it's Bankruptcy, Liquidation, Insolvency Advice or simply General Debt Advice.