September 13, 2017 0

Australia’s Household Debt Crisis Looms

Posted by:Charles Bosse onSeptember 13, 2017

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Today in the news, former economics advisor John Adams indicated that Australia is too late to avoid 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 prevent household debt getting further out of hand.

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

I accept that this impending 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 greatly to total household debt. The authorities in Canberra understand that there’s an enflamed house market but appear to be despised to take on any stern steps to correct it for fear of a property crash.

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

Among one of the indicators that confirm the household debt crisis we are starting to see is the increase in the bankruptcy numbers throughout 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 sector, our experts are witnessing the harmful effects of house prices going backwards. Even though it is not the prime cause of personal bankruptcies, it most certainly is a significant 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. Simply put, you can borrow a lot more if you are a home owner than if you are not a home owner. I bankrupt people everyday and the quantity of debt fluctuates 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 steady income and less likely to wind up bankrupt, so in turn 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 appears we are running into a wall at full speed, and there are not too many 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 Sydney on 1300 818 575 or visit our website for additional information: http://freshstartsolutions.com.au/bankruptcy-sydney

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