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September 13, 2017Comments Closed

Australia’s Household Debt Crisis Looms

Posted by:Charles Bosse onSeptember 13, 2017

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

This bubble is very easy to spell out. Confidence! It’s the unfounded perception that Australia’s last 20 years of continual economic growth will never experience any type of correction is most troubling. Australia survived the GFC and a mining boom and bust. At the same time, 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 problems through a completely different lens to the rest of the country. It’s a two-speed economy spiralling uncontrollably.

I recognise that this looming crisis isn’t just as simple as house prices in our two largest cities, but the average house prices in these cities are ever rising and contribute greatly to overall household debt. The boffins in Canberra realise there’s an enflamed house market but seem to be reviled to take on any substantial measures to correct it for fear of a housing crash.

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

Just one of the indicators that demonstrate the household debt crisis we are starting to see is the rise in the bankruptcy numbers over the entire country, specifically 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, our team are encountering the incapacitating effects of house prices going backwards. Even though it is not the fundamental cause of personal bankruptcies, it clearly is a pivotal factor.

House prices going backwards is just part of the dilemma; the other thing is owning a home in Australia allows lenders to put you in a very different space as far as borrowing capacity. To put it 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 amount of debt fluctuates considerably 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 stable 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 seems we are running into a wall at full speed, and there are not too many people suggesting we slow down. If you wish to know more about the looming household debt crisis then phone us here at Bankruptcy Experts on 1300 795 575 or visit our website for additional information: www.bankruptcyexperts.com.au

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