Today in the news, former economics advisor John Adams said that Australia is too late to prevent an ‘economic apocalypse’ even after his repeated warnings to the political elites in Canberra. He continued to urge the Reserve Bank to raise interest rates to stop household debt getting further out of control.
This bubble is very easy to understand. Confidence! It’s the inaccurate perception that Australia’s last 20 years of continued economic growth will never experience any sort of correction is most worrying. 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. Sadly, the decision makers and powerful elite in Australia reside in these two cities, and see Australia’s economic obstacles through a totally different lens to the remainder of the country. It’s a two-speed economy spiralling out of control.
I recognise that this emerging crisis isn’t just as simple as house prices in our two largest cities, however the median house prices in these cities are ever rising and contribute substantially to overall household debt. The experts in Canberra appreciate there’s an overheated house market but seem to be detested to take on any focused measures to correct it for fear of a housing crash.
As far as the rest of the country goes, they have a completely different set of economic concerns. For Western Australia and Queensland especially, the mining bust has sent house prices spiralling downwards for years now.
Just one of the indicators that confirm the hpw household debt crisis we are beginning to see is the surge in the bankruptcy numbers over the entire country, specifically in the 2017 March quarter.
In the insolvency sector, our team are seeing the disastrous effects of house prices going backwards. While it is not the prime cause of personal bankruptcies, it clearly is a vital factor.
House prices going backwards is just part of the dilemma; 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. Simply put, 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 substantially 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 end 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 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 seems we are running into a wall at full speed, and there are few people suggesting we slow down. If you would like to know more about the looming household debt crisis then get in touch with us here at Bankruptcy Experts Hervey Bay on 1300 795 575 or visit our website for more information: www.bankruptcyexpertsherveybay.com.au