Australia’s Household Debt Crisis Looms
Today in the news, former economics advisor John Adams suggested that Australia is too late to stop an ‘economic apocalypse’ regardless of his repeated 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 understand. Confidence! It’s the mistaken perception that Australia’s last twenty years of continual economic growth will never encounter any type of correction is most troublesome. Australia survived the GFC and a mining boom and bust. Meanwhile, Sydney and Melbourne house prices have not missed a beat or taken a backward step. Unfortunately, the decision makers and powerful elite in Australia are from these two cities, and see Australia’s economic obstacles through an entirely different lens to the remainder of the country. It’s a two-speed economy spiralling uncontrollably.
I acknowledge 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 overall household debt. The experts in Canberra recognise there’s an inflamed house market but appear to be loathed to take on any severe actions to correct it for fear of a house crash.
As far as the rest of the country goes, they have a completely different set of economic prerogatives. For Western Australia and Queensland specifically, the mining bust has sent real estate prices plumetting downwards for years now.
Among one of the signals that confirm the household debt crisis we are starting to see is the surge in the bankruptcy numbers over the entire country, specifically in the March 2017 quarter.
In the insolvency market, we are encountering the harmful effects of house prices going backwards. While it is not the main cause of personal bankruptcies, it evidently is a critical 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 far more if you are a home owner than if you are not a home owner. I bankrupt people everyday and the level of debt differs significantly 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 consistent income and less likely to wind up bankrupt, so subsequently 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 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 seems 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 phone us here at Bankruptcy Experts Joondalup on 1300 795 575 or visit our website for additional information: www.bankruptcyexpertsjoondalup.com.au