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

 

This bubble is very simple to explain. Confidence! It’s the erroneous perception that Australia’s last 20 years of continual economic growth will never encounter any type of correction is most troubling. Australia survived the GFC and a mining boom and bust. In the meantime, Melbourne and Sydney house prices have not missed a beat or taken a backward step. Regretfully, the decision makers and powerful elite in Australia are from these two cities, and see Australia’s economic obstacles through a completely different lens to the rest of the country. It’s a two-speed economy spiralling uncontrollably.

 

I acknowledge that this looming crisis isn’t just as straightforward as house prices in our two biggest cities, but the average house prices in these cities are ever rising and contribute considerably to total household debt. The specialists in Canberra appreciate there’s an overpriced house market but seem to be reviled to take on any severe steps to correct it for fear of a housing crash.

 

As far as the remainder of the country goes, they have an entirely different set of economic considerations. For Western Australia and Queensland especially, the mining bust has sent house prices tumbling downwards for years now.

 

One of the signs that confirm the household debt hpw crisis we are starting to see is the rise in the bankruptcy numbers over the entire country, especially 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 team are inspecting the destructive effects of house prices going backwards. Although not the predominant cause of personal bankruptcies, it definitely is a significant 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. Simply put, 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 quantity of debt varies dramatically 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 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 seems 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 contact with us here at Bankruptcy Melbourne on 1300 879 867 or visit our website for more information: www.bankruptcymelbourne.com