September 13, 2017 0

Australia’s Household Debt Crisis Looms

Posted by:Charles Bosse onSeptember 13, 2017

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

This bubble is easy to understand. Confidence! It’s the misconstrued perception that Australia’s last 20 years of continual economic growth will never experience any type of correction is most troublesome. Australia survived the GFC and a mining boom and bust. At the same time, Sydney and Melbourne house prices have not missed a beat or taken a backward step. Regrettably, the decision makers and powerful elite in Australia reside in these two cities, and see Australia’s economic challenges through an entirely different lens to the remainder of the country. It’s a two-speed economy spiralling uncontrollably.

I recognise that this impending crisis isn’t just as straightforward as house prices in our two largest cities, however the average house prices in these cities are ever rising and contribute greatly to total household debt. The experts in Canberra realise there’s an inflamed house market but appear to be reviled 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 a completely different set of economic considerations. For Western Australia and Queensland specifically, the mining bust has sent real estate prices spiralling downwards for years now.

Just one of the warning signs that illustrate the household debt crisis we are starting to see is the rise in the bankruptcy numbers over the entire country, particularly 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 firm are inspecting the disastrous effects of house prices going backwards. Although not the primary cause of personal bankruptcies, it evidently is a vital factor.

House prices going backwards is just part of the predicament; 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. 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 extent of debt differs dramatically 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 stable 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 seems we are running into a wall at full speed, and there are not too many people suggesting we slow down. If you wish to know more about the looming household debt crisis then give us a call here at Fresh Start Solutions Hobart on 1300 818 575 or visit our website for additional information: http://freshstartsolutions.com.au/bankruptcy-hobart

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