Australia’s Household Debt Crisis Looms
Today in the news, former economics advisor John Adams advised that Australia is too late to prevent an ‘economic apocalypse’ regardless of his repeated warnings to the political elites in Canberra. He proceeded to implore the Reserve Bank to raise interest rates to stop household debt getting further out of hand.
This bubble is very easy to explain. Confidence! It’s the fallacious perception that Australia’s last twenty years of continual economic growth will never encounter any sort of correction is most worrying. Australia survived the GFC and a mining boom and bust. In the meantime, Melbourne and Sydney house prices have not missed a beat or taken a backward step. Unfortunately, the decision makers and powerful elite in Australia reside in these two cities, and see Australia’s economic obstacles through an entirely different lens to the rest of the country. It’s a two-speed economy spiralling out of control.
I concede that this emerging 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 dramatically to overall household debt. The specialists in Canberra understand that there’s an overpriced house market but seem to be despised to take on any focused steps 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 priorities. For Western Australia and Queensland particularly, the mining bust has sent real estate prices sinking downwards for years now.
Among one of the signs that illustrate the household debt crisis we are beginning to see is the increase in the bankruptcy numbers across the entire country, specifically in the 2017 March quarter.
In the insolvency market, our company are observing the distressing effects of house prices going backwards. Although not the leading cause of personal bankruptcies, it surely is a decisive factor.
House prices going backwards is just part of the issue; the other thing is owning a home in Australia enables 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 differs substantially 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 wind 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 due to the fact that 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 very few people suggesting we slow down. If you want to know more about the looming household debt crisis then get in contact with us here at Bankruptcy Experts Geelong on 1300 795 575 or visit our website for additional information: www.bankruptcyexpertsgeelong.com.au