Today in the news, former economics advisor John Adams indicated that Australia is too late to avoid an ‘economic apocalypse’ even after his continual warnings to the political elites in Canberra. He went on to implore the Reserve Bank to raise interest rates to stop household debt getting further out of control.
This bubble is easy to understand. Confidence! It’s the erroneous perception that Australia’s last twenty years of continual economic growth will never encounter any sort of correction is most troublesome. Australia survived the GFC and a mining boom and bust. Meanwhile, Melbourne and Sydney house prices have not missed a beat or taken a backward step. Regrettably, the decision makers and powerful elite in this country are from these two cities, and see Australia’s economic problems through a completely different lens to the rest of the country. It’s a two-speed economy spiralling uncontrollably.
I recognise that this emerging crisis isn’t just as simple as house prices in our two largest cities, however the average house prices in these cities are ever rising and contribute substantially to overall household debt. The authorities in Canberra understand that there’s an overheated house market but appear to be loathed to take on any severe efforts 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 concerns. For Western Australia and Queensland especially, the mining bust has sent house prices tumbling downwards for years now.
Just one of the indicators that demonstrate the household debt crisis we are beginning to see is the increase in the bankruptcy numbers throughout the entire country, particularly in the 2017 March quarter.
(source: https://www.afsa.gov.au/about-us/newsroom/media-release-regional-personal-insolvency-statistics-march-quarter-2017).
In the insolvency sector, our company are observing the damaging effects of house prices going backwards. Though it is not the fundamental cause of personal bankruptcies, it evidently is a significant factor.
House prices going backwards is just part of the predicament; the other thing is owning a home in Australia allows 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 quantity of debt varies substantially 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 steady 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 would like to know more about the looming household debt crisis then phone us here at Bankruptcy Experts Bundaberg on 1300 795 575 or visit our website to find out more: www.bankruptcyexpertsbundaberg.com.au