Australia’s Household Debt Crisis Looms

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Australia’s Household Debt Crisis Looms

Bankruptcy Wangaratta

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

This bubble is easy to express. Confidence! It’s the incorrect perception that Australia’s last 20 years of continued economic growth will never experience any form of correction is most unsettling. Australia survived the GFC and a mining boom and bust. At the same time, Sydney and Melbourne house prices have not skipped a beat or taken a backward step. Regretfully, the decision makers and powerful elite in this country live in these two cities, and see Australia’s economic hurdles through a totally different lens to the rest of the country. It’s a two-speed economy spiralling out of control.

I recognise that this emerging crisis isn’t just as simple as house prices in our two biggest cities, however the median house prices in these cities are ever rising and contribute largely to overall household debt. The specialists in Canberra are aware of an overheated house market but seem to be repugnant to take on any serious efforts to correct it for fear of a house crash.

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

Just one of the warning signs that confirm the household debt crisis we are beginning to see is the rise in the bankruptcy numbers throughout the entire country, particularly 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 company are encountering the destructive effects of house prices going backwards. While it is not the fundamental cause of personal bankruptcies, it undoubtedly 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 much more if you are a home owner than if you are not a home owner. I bankrupt people everyday and the quantity of debt fluctuates greatly 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 steady income and less likely to end up bankrupt, so subsequently 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 need to know more about the looming household debt crisis then give us a call here at Bankruptcy Experts Wangaratta on 1300 795 575 or visit our website to find out more: www.bankruptcyexpertswangaratta.com.au

By | 2018-07-26T02:43:00+00:00 September 14th, 2017|Bankruptcy, Blog|0 Comments

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