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

This bubble is very easy to express. Confidence! It’s the false perception that Australia’s last twenty years of sustained economic growth will never experience any type of correction is most disturbing. Australia survived the GFC and a mining boom and bust. In the meantime, Sydney and Melbourne house prices have not missed a beat or taken a backward step. Sadly, the decision makers and powerful elite in this country reside in these two cities, and see Australia’s economic challenges through a totally different lens to the rest of the country. It’s a two-speed economy spiralling out of control.

I acknowledge that this impending crisis isn’t just as simple as house prices in our two biggest cities, however the average house prices in these cities are ever rising and contribute greatly to total household debt. The specialists in Canberra recognise there’s an overheated house market but seem to be loathed to take on any focused actions to correct it for fear of a housing crash.

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

One of the warning signs 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 sector, our company are observing the harmful effects of house prices going backwards. While it is not the prime cause of personal bankruptcies, it undoubtedly is an integral factor.

House prices going backwards is just part of the issue; the other thing is owning a home in Australia allows 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 quantity of debt varies substantially from the non-home owner to the home owner. Lending is based 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 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 need to know more about the looming household debt crisis then give us a call here at Bankruptcy Experts Dandenong on 1300 795 575 or visit our website for more information: www.bankruptcyexpertsdandenong.com.au

Australia’s Household Debt Crisis Looms