Australia’s Household Debt Crisis Looms

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Bankruptcy,Bankruptcy Advice,InsolvencyToday in the news, former economics advisor John Adams revealed that Australia is too late to avoid an ‘economic apocalypse’ even after his recurrent warnings to the political elites in Canberra. He went on to implore the Reserve Bank to raise interest rates to prevent household debt getting further out of control.

This bubble is simple to illustrate. Confidence! It’s the inaccurate 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, Melbourne and Sydney house prices have not skipped a beat or taken a backward step. Unfortunately, the decision makers and powerful elite in this country reside in these two cities, and see Australia’s economic obstacles through a totally different lens to the rest of the country. It’s a two-speed economy spiralling uncontrollably.

I accept that this looming crisis isn’t just as straightforward as house prices in our two largest cities, however the median house prices in these cities are ever rising and contribute largely to total household debt. The boffins in Canberra are aware of an enflamed house market but seem to be despised to take on any severe actions to correct it for fear of a house 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 sinking downwards for years now.

Among one of the signs that illustrate the household debt crisis we are starting to see is the increase in the bankruptcy numbers throughout 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, we are witnessing the incapacitating effects of house prices going backwards. While it is not the fundamental cause of personal bankruptcies, it definitely is an integral 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. Put simply, 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 differs 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 stable income and less likely to wind 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 appears we are running into a wall at full speed, and there are not too many people suggesting we slow down. If you would like to know more about the looming household debt crisis then get in contact with us here at Bankruptcy Advice Perth on 1300 879 867 or visit our website for additional information: www.bankruptcy-advice.com.au/perth

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