Australia’s Household Debt Crisis Looms

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

 

This bubble is easy to spell out. Confidence! It’s the misconstrued perception that Australia’s last 20 years of sustained economic growth will never encounter any form of correction is most troubling. Australia survived the GFC and a mining boom and bust. In the meantime, Melbourne and Sydney house prices have not skipped a beat or taken a backward step. Unfortunately, the decision makers and powerful elite in this country reside in these two cities, and see Australia’s economic hurdles through an entirely different lens to the remainder of the country. It’s a two-speed economy spiralling uncontrollably.

 

I acknowledge that this impending crisis isn’t just as straightforward as house prices in our two biggest cities, but the median house prices in these cities are ever rising and contribute greatly to total household debt. The experts in Canberra realise there’s an overheated house market but appear to be reviled to take on any severe steps to correct it for fear of a property crash.

 

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

 

One of the indicators that demonstrate the household debt crisis we are beginning to see is the surge in the bankruptcy numbers across the entire country, especially 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 market, our team are examining the disastrous effects of house prices going backwards. Although not the prime cause of personal bankruptcies, it clearly is a crucial factor.

 

House prices going backwards is just part of the problem; the other thing is owning a home in this country allows lenders to put you in a very different space as far as borrowing capacity. Put simply, 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 extent of debt differs significantly 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 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 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 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 Australia on 1300 795 575 or visit our website for additional information: www.bankruptcy-australia.net.au