Australia’s Household Debt Crisis Looms

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Australia’s Household Debt Crisis Looms

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Today in the news, former economics advisor John Adams said that Australia is too late to avoid an ‘economic apocalypse’ despite his recurrent warnings to the political elites in Canberra. He went on to urge the Reserve Bank to raise interest rates to avoid household debt getting further out of hand.

This bubble is very easy to illustrate. Confidence! It’s the unfounded perception that Australia’s last 20 years of sustained economic growth will never encounter any form of correction is most disturbing. Australia survived the GFC and a mining boom and bust. At the same time, Sydney and Melbourne house prices have not skipped a beat or taken a backward step. Regretfully, the decision makers and powerful elite in Australia live in these two cities, and see Australia’s economic problems through a completely 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 median house prices in these cities are ever rising and contribute significantly to total household debt. The authorities in Canberra recognise there’s an inflamed house market but seem to be detested to take on any substantial actions to correct it for fear of a property crash.

As far as the remainder of the country goes, they have an entirely different set of economic concerns. For Western Australia and Queensland particularly, the mining bust has sent real estate prices sinking downwards for years now.

Among one of the indicators that illustrate the household debt crisis we are beginning to see is the surge 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 team are encountering the devastating effects of house prices going backwards. Although not the main cause of personal bankruptcies, it certainly is a vital factor.

House prices going backwards is just part of the dilemma; the other thing is owning a home in Australia enables 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 amount of debt fluctuates dramatically 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 wind up bankrupt, so subsequently 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 wish to know more about the looming household debt crisis then give us a ring here at Bankruptcy Experts Geraldton on 1300 795 575 or visit our website for more information: www.bankruptcyexpertsgeraldton.com.au

By | 2017-10-12T02:55:37+00:00 September 14th, 2017|Bankruptcy, Liquidation|0 Comments

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