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 went on to request the Reserve Bank to raise interest rates to prevent household debt getting further out of control.
This bubble is very simple to express. Confidence! It’s the erroneous perception that Australia’s last 20 years of continued economic growth will never encounter any form of correction is most disconcerting. 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 this country are from these two cities, and see Australia’s economic obstacles through a completely different lens to the rest of the country. It’s a two-speed economy spiralling out of control.
I concede that this emerging crisis isn’t just as simple as house prices in our two largest cities, but the average house prices in these cities are ever rising and contribute dramatically to overall household debt. The specialists in Canberra realise there’s an inflamed house market but seem to be detested to take on any substantial actions to correct it for fear of a property crash.
As far as the remainder of the country goes, they have a totally different set of economic considerations. For Western Australia and Queensland particularly, the mining bust has sent property prices spiralling downwards for years now.
One of the indicators that demonstrate the household debt crisis we are starting to see is the increase in the bankruptcy numbers throughout the entire country, specifically in the March 2017 quarter.
In the insolvency market, our firm are witnessing the destructive effects of house prices going backwards. Although not the main cause of personal bankruptcies, it evidently is a critical factor.
House prices going backwards is just part of the issue; the other thing is owning a home in Australia 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 quantity of debt differs 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 steady income and less likely to end up bankrupt, so consequently 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 appears we are running into a wall at full speed, and there are not too many people suggesting we slow down. If you want to know more about the looming household debt crisis then get in touch with us here at Bankruptcy Experts Shellharbour on 1300 795 575 or visit our website for additional information: www.bankruptcyexpertsshellharbour.com.au