Australia’s Household Debt Crisis Looms

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Today in the news, former economics advisor John Adams revealed that Australia is too late to avoid an ‘economic apocalypse’ even after his repetitive warnings to the political elites in Canberra. He proceeded to advise the Reserve Bank to raise interest rates to prevent household debt getting further out of hand.


This bubble is very easy to spell out. Confidence! It’s the fallacious perception that Australia’s last 20 years of sustained economic growth will never experience any type of correction is most disconcerting. Australia survived the GFC and a mining boom and bust. In the meantime, Melbourne and Sydney house prices have not skipped a beat or taken a backward step. Unfortunately, the decision makers and powerful elite in Australia live in these two cities, and see Australia’s economic hurdles through an entirely 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 straightforward as house prices in our two biggest cities, however the average house prices in these cities are ever rising and contribute largely to overall household debt. The authorities in Canberra are aware of an inflamed house market but appear to be loathed to take on any serious 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 priorities. For Western Australia and Queensland especially, the mining bust has sent house prices sinking downwards for years now.


Just one of the signs that demonstrate the household debt crisis we are starting to see is the increase in the bankruptcy numbers over the entire country, particularly in the March 2017 quarter.




In the insolvency sector, our company are observing the incapacitating effects of house prices going backwards. While it is not the fundamental cause of personal bankruptcies, it surely 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 a lot more if you are a home owner than if you are not a home owner. I bankrupt people everyday and the extent of debt differs greatly 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 reliable income and less likely to end 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 appears we are running into a wall at full speed, and there are not too many people suggesting we slow down. If you need to know more about the looming household debt crisis then get in touch with us here at Bankruptcy Experts Australia on 1300 795 575 or visit our website for additional information:

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