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 proposed that Australia is too late to prevent an ‘economic apocalypse’ even after his continual warnings to the political elites in Canberra. He proceeded to insist the Reserve Bank to raise interest rates to stop household debt getting further out of hand.

This bubble is very simple to express. Confidence! It’s the unfounded perception that Australia’s last twenty years of sustained economic growth will never experience any kind of correction is most disconcerting. 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. Regretfully, the decision makers and powerful elite in Australia are from these two cities, and see Australia’s economic challenges through a completely different lens to the rest of the country. It’s a two-speed economy spiraling uncontrollably.

I acknowledge that this looming crisis isn’t just as simple as house prices in our two largest cities, however the median house prices in these cities are ever rising and contribute greatly to total household debt. The authorities in Canberra appreciate there’s an inflamed house market but appear to be loathed to take on any substantial steps to correct it for fear of a house crash.

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

Just one of the signals that confirm 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 firm are seeing the distressing effects of house prices going backwards. Although not the primary cause of personal bankruptcies, it undoubtedly is a vital factor.

House prices going backwards is just part of the problem; 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. 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 level of debt varies considerably from the non-home owner to the home owner. Lending is hinged on algorithms and risk, so I suppose if you own a home you’re more likely to have steady income and less likely to wind up bankrupt, so in turn 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 want to know more about the looming household debt crisis then give us a ring here at Bankruptcy Experts Hobart on 1300 795 575 or visit our website for more information: www.bankruptcyexpertshobart.com.au

By | 2017-11-14T23:52:43+00:00 September 14th, 2017|Bankrupt, blog|0 Comments

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