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 suggested that Australia is too late to stop an ‘economic apocalypse’ in spite of his repetitive warnings to the political elites in Canberra. He went on to insist the Reserve Bank to raise interest rates to prevent household debt getting further out of control.

This bubble is easy to understand. Confidence! It’s the unfounded perception that Australia’s last 20 years of sustained economic growth will never experience any sort of correction is most distressing. Australia survived the GFC and a mining boom and bust. In the meantime, Sydney and Melbourne house prices have not missed a beat or taken a backward step. Regrettably, the decision makers and powerful elite in this country are from these two cities, and see Australia’s economic challenges through a completely different lens to the rest of the country. It’s a two-speed economy spiralling uncontrollably.

I concede that this impending crisis isn’t just as simple as house prices in our two largest cities, but the median house prices in these cities are ever rising and contribute largely to overall household debt. The experts in Canberra are aware of an enflamed house market but appear to be detested to take on any stern actions to correct it for fear of a property crash.

As far as the rest of the country goes, they have an entirely different set of economic considerations. For Western Australia and Queensland especially, the mining bust has sent house prices plumetting downwards for years now.

Among one of the indicators that illustrate the household debt crisis we are beginning to see is the increase in the bankruptcy numbers across 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 team are observing the distressing effects of house prices going backwards. While it is not the leading cause of personal bankruptcies, it evidently is an integral factor.

House prices going backwards is just part of the predicament; the other thing is owning a home in this country enables lenders to put you in a very different space as far as borrowing capacity. Simply put, 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 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 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 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 call us here at Fresh Start Solutions Canberra on 1300 818 575 or visit our website for additional information: http://freshstartsolutions.com.au/bankruptcy-canberra

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