September 13, 20170

Australia’s Household Debt Crisis Looms

Posted by:Charles Bosse onSeptember 13, 2017

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

This bubble is easy to describe. Confidence! It’s the erroneous perception that Australia’s last twenty years of sustained economic growth will never encounter any type 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 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 biggest cities, but the median house prices in these cities are ever rising and contribute strongly to overall household debt. The authorities in Canberra recognise there’s an enflamed house market but appear to be detested to take on any serious efforts to correct it for fear of a property crash.

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

Just one of the signs that illustrate the household debt crisis we are starting to see is the rise 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 sector, our team are inspecting the devastating effects of house prices going backwards. Even though it is not the predominant cause of personal bankruptcies, it certainly is a crucial 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. 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 amount of debt varies dramatically 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 reliable income and less likely to end 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 appears we are running into a wall at full speed, and there are not too many people suggesting we slow down. If you would like to know more about the looming household debt crisis then give us a ring here at Fresh Start Solutions Brisbane on 1300 818 575 or visit our website for more information: http://freshstartsolutions.com.au/bankruptcy-brisbane

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