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 avoid an ‘economic apocalypse’ in spite of his repeated warnings to the political elites in Canberra. He continued to implore the Reserve Bank to raise interest rates to stop household debt getting further out of hand.

This bubble is easy to express. Confidence! It’s the misconstrued perception that Australia’s last twenty years of continued economic growth will never encounter any form of correction is most unsettling. 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. Regrettably, the decision makers and powerful elite in this country 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 out of control.

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 dramatically to total household debt. The specialists in Canberra are aware of an inflamed house market but appear to be loathed to take on any genuine steps to correct it for fear of a housing crash.

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

One of the indicators that demonstrate the household debt crisis we are beginning to see is the rise 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 company are seeing the devastating effects of house prices going backwards. Though it is not the main cause of personal bankruptcies, it most certainly is a pivotal 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. To put it simply, 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 extent of debt varies considerably from the non-home owner to the home owner. Lending is founded on 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 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 appears we are running into a wall at full speed, and there are very few people suggesting we slow down. If you would like to know more about the looming household debt crisis then get in touch with us here at Fresh Start Solutions Adelaide on 1300 818 575 or visit our website for more information: https://freshstartsolutions.com.au/bankruptcy-adelaide

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