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 said that Australia is too late to stop an ‘economic apocalypse’ in spite of his continual warnings to the political elites in Canberra. He proceeded to request the Reserve Bank to raise interest rates to avoid household debt getting further out of control.

This bubble is very simple to explain. Confidence! It’s the mistaken perception that Australia’s last twenty years of continual economic growth will never encounter any sort of correction is most unsettling. Australia survived the GFC and a mining boom and bust. Meanwhile, Sydney and Melbourne house prices have not missed a beat or taken a backward step. Sadly, the decision makers and powerful elite in Australia reside in these two cities, and see Australia’s economic problems through an entirely different lens to the remainder of the country. It’s a two-speed economy spiralling out of control.

I accept that this looming crisis isn’t just as straightforward as house prices in our two biggest cities, however the average house prices in these cities are ever rising and contribute substantially to total household debt. The experts in Canberra recognise there’s an overpriced house market but appear to be repugnant to take on any severe efforts to correct it for fear of a housing crash.

As far as the remainder of the country goes, they have a completely different set of economic prerogatives. For Western Australia and Queensland especially, the mining bust has sent house prices spiralling downwards for years now.

Among one of the warning signs that confirm the household debt crisis we are beginning to see is the rise in the bankruptcy numbers across the entire country, specifically 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 market, our team are discovering the destructive effects of house prices going backwards. Even though it is not the predominant cause of personal bankruptcies, it certainly is a decisive factor.

House prices going backwards is just part of the challenge; 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 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 varies significantly 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 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 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 wish to know more about the looming household debt crisis then get in contact with us here at Fresh Start Solutions Gold Coast on 1300 818 575 or visit our website for additional information: http://freshstartsolutions.com.au/bankruptcy-goldcoast

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