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 revealed that Australia is too late to avoid an ‘economic apocalypse’ in spite of his repeated warnings to the political elites in Canberra. He went on to insist the Reserve Bank to raise interest rates to avoid household debt getting further out of hand.

This bubble is simple to describe. Confidence! It’s the misconstrued perception that Australia’s last twenty years of sustained economic growth will never experience any form of correction is most worrying. Australia survived the GFC and a mining boom and bust. Meanwhile, Sydney and Melbourne house prices have not skipped a beat or taken a backward step. Regrettably, the decision makers and powerful elite in Australia live 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 uncontrollably.

I concede that this emerging crisis isn’t just as simple as house prices in our two biggest cities, but the average house prices in these cities are ever rising and contribute considerably to overall household debt. The boffins in Canberra understand that there’s an overheated house market but appear to be despised to take on any genuine efforts 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 prerogatives. For Western Australia and Queensland especially, the mining bust has sent house prices sinking downwards for years now.

Among one of the signs that confirm the household debt crisis we are beginning to see is the increase in the bankruptcy numbers throughout 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 company are discovering the destructive effects of house prices going backwards. While it is not the main cause of personal bankruptcies, it undoubtedly is a crucial factor.

House prices going backwards is just part of the dilemma; 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 differs greatly 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 consistent income and less likely to wind up bankrupt, so consequently 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 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 few 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 Sunshine Coast on 1300 818 575 or visit our website to find out more: http://freshstartsolutions.com.au/bankruptcy-sunshinecoast

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