Today in the news, former economics advisor John Adams proposed that Australia is too late to avoid an ‘economic apocalypse’ regardless of his repeated warnings to the political elites in Canberra. He proceeded to request the Reserve Bank to raise interest rates to prevent household debt getting further out of hand.
This bubble is easy to express. Confidence! It’s the misconstrued perception that Australia’s last twenty years of continued economic growth will never encounter any sort of correction is most troublesome. Australia survived the GFC and a mining boom and bust. At the same time, Melbourne and Sydney house prices have not skipped a beat or taken a backward step. Unfortunately, the decision makers and powerful elite in Australia reside in these two cities, and see Australia’s economic obstacles through an entirely different lens to the rest of the country. It’s a two-speed economy spiralling out of control.
I accept that this looming crisis isn’t just as simple as house prices in our two biggest cities, however the median house prices in these cities are ever rising and contribute greatly to total household debt. The experts in Canberra realise there’s an overheated house market but appear to be despised to take on any serious actions to correct it for fear of a house crash.
As far as the remainder of the country goes, they have a totally different set of economic prerogatives. For Western Australia and Queensland especially, the mining bust has sent house prices plumetting downwards for years now.
Among one of the signals that confirm the 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 company are seeing the destructive effects of house prices going backwards. Even though it is not the primary cause of personal bankruptcies, it clearly is a significant factor.
House prices going backwards is just part of the dilemma; the other thing is owning a home in this country allows lenders to put you in a very different space as far as borrowing capacity. Simply put, 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 extent of debt varies considerably 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 reliable 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 few people suggesting we slow down. If you wish to know more about the looming household debt crisis then call us here at Bankruptcy Experts Townsville on 1300 795 575 or visit our website for additional information: www.bankruptcyexpertstownsville.com.au