Today in the news, former economics advisor John Adams indicated that Australia is too late to avoid an ‘economic apocalypse’ even after his repetitive warnings to the political elites in Canberra. He proceeded to insist the Reserve Bank to raise interest rates to avoid household debt getting further out of control.
This bubble is very simple to illustrate. Confidence! It’s the erroneous perception that Australia’s last 20 years of sustained economic growth will never encounter any type of correction is most unsettling. 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. Sadly, the decision makers and powerful elite in this country reside in these two cities, and see Australia’s economic problems through a totally different lens to the remainder of the country. It’s a two-speed economy spiralling uncontrollably.
I recognise that this emerging 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 greatly to total household debt. The authorities in Canberra realise there’s an overpriced house market but seem to be detested to take on any severe actions to correct it for fear of a property crash.
As far as the remainder of the country goes, they have an entirely different set of economic concerns. For Western Australia and Queensland especially, the mining bust has sent property prices tumbling downwards for years now.
Just one of the signs that illustrate the household debt crisis we are beginning to see is the surge in the bankruptcy numbers throughout the entire country, particularly in the March 2017 quarter.
In the insolvency market, our firm are witnessing the damaging effects of house prices going backwards. While it is not the prime cause of personal bankruptcies, it certainly is an integral factor.
House prices going backwards is just part of the predicament; the other thing is owning a home in Australia enables lenders to put you in a very different space as far as borrowing capacity. Put simply, 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 extent of debt differs largely 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 seems we are running into a wall at full speed, and there are very few people suggesting we slow down. If you want to know more about the looming household debt crisis then call us here at Bankruptcy Experts Port Stephens on 1300 795 575 or visit our website for additional information: www.bankruptcyexpertsportstephens.com.au