Today in the news, former economics advisor John Adams said that Australia is too late to stop an ‘economic apocalypse’ despite his incessant warnings to the political elites in Canberra. He proceeded to advise the Reserve Bank to raise interest rates to avoid household debt getting further out of hand.
This bubble is very easy to express. Confidence! It’s the mistaken perception that Australia’s last 20 years of continual economic growth will never experience any type of correction is most disturbing. Australia survived the GFC and a mining boom and bust. At the same time, Sydney and Melbourne house prices have not skipped a beat or taken a backward step. Unfortunately, the decision makers and powerful elite in this country are from these two cities, and see Australia’s economic obstacles through an entirely different lens to the remainder of the country. It’s a two-speed economy spiralling uncontrollably.
I recognise that this looming crisis isn’t just as straightforward as house prices in our two largest cities, but the average house prices in these cities are ever rising and contribute greatly to total household debt. The specialists in Canberra are aware of an overheated house market but appear to be reviled to take on any focused actions 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 priorities. For Western Australia and Queensland specifically, the mining bust has sent house prices plumetting downwards for years now.
One of the signals that confirm the household debt crisis we are beginning to see is the rise in the bankruptcy numbers over the entire country, especially in the 2017 March quarter.
In the insolvency market, our company are encountering the destructive effects of house prices going backwards. Although not the prime cause of personal bankruptcies, it evidently is a vital factor.
House prices going backwards is just part of the problem; 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. 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 quantity of debt varies largely 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 stable income and less likely to wind up bankrupt, so in turn 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 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 appears 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 call us here at Bankruptcy Experts Brisbane on 1300 795 575 or visit our website to find out more: www.bankruptcyexpertsbrisbane.com.au