Australia’s Household Debt Crisis Looms

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Australia’s Household Debt Crisis Looms

Bankruptcy Northern Rivers

Today in the news, former economics advisor John Adams said that Australia is too late to prevent an ‘economic apocalypse’ even after his recurrent warnings to the political elites in Canberra. He went on to request the Reserve Bank to raise interest rates to stop household debt getting further out of hand.

This bubble is easy to express. Confidence! It’s the misconstrued perception that Australia’s last twenty years of continual economic growth will never encounter any kind of correction is most worrying. Australia survived the GFC and a mining boom and bust. Meanwhile, 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 are from these two cities, and see Australia’s economic problems through a totally different lens to the remainder of the country. It’s a two-speed economy spiralling out of control.

I acknowledge that this impending crisis isn’t just as straightforward as house prices in our two largest cities, but the average house prices in these cities are ever rising and contribute dramatically to total household debt. The experts in Canberra understand that there’s an overheated house market but seem to be despised to take on any severe efforts to correct it for fear of a property crash.

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

Among one of the signals that demonstrate the household debt crisis we are starting to see is the surge in the bankruptcy numbers over 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 sector, our team are examining the devastating effects of house prices going backwards. Though it is not the prime cause of personal bankruptcies, it naturally is a significant 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 a lot more if you are a home owner than if you are not a home owner. I bankrupt people everyday and the level of debt differs greatly 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 consistent income and less likely to wind up bankrupt, so in turn 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 get in touch with us here at Bankruptcy Experts Northern Rivers on 1300 795 575 or visit our website for more information: www.bankruptcyexpertsnorthernrivers.com.au

By | 2018-03-08T05:56:42+00:00 September 18th, 2017|Bankrupt, Blog|0 Comments

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