Today in the news, former economics advisor John Adams advised that Australia is too late to prevent an ‘economic apocalypse’ regardless of his continual warnings to the political elites in Canberra. He continued to advise the Reserve Bank to raise interest rates to avoid household debt getting further out of hand.

 

This bubble is very easy to illustrate. Confidence! It’s the erroneous perception that Australia’s last 20 years of sustained economic growth will never experience any type of correction is most troubling. Australia survived the GFC and a mining boom and bust. At the same time, Melbourne and Sydney house prices have not missed a beat or taken a backward step. Regretfully, the decision makers and powerful elite in Australia are from these two cities, and see Australia’s economic hurdles through an entirely different lens to the rest of the country. It’s a two-speed economy spiralling uncontrollably.

 

I accept that this impending crisis isn’t just as simple as house prices in our two biggest cities, however the average house prices in these cities are ever rising and contribute strongly to total household debt. The boffins in Canberra appreciate there’s an overheated house market but appear to be repugnant to take on any stern measures to correct it for fear of a house crash.

 

As far as the rest of the country goes, they have a totally different set of economic considerations. For Western Australia and Queensland specifically, the mining bust has sent real estate prices spiralling downwards for years now.

 

Among one of the signals that demonstrate the household debt crisis we are beginning to see is the rise in the bankruptcy numbers over the entire country, especially in the March 2017 quarter.

 

(source: https://www.afsa.gov.au/about-us/newsroom/media-release-regional-personal-insolvency-statistics-march-quarter-2017).

 

In the insolvency market, our firm are discovering the terrible effects of house prices going backwards. While it is not the fundamental cause of personal bankruptcies, it evidently is a pivotal factor.

 

House prices going backwards is just part of the challenge; the other thing is owning a home in this country enables 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 fluctuates dramatically 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 subsequently 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 seems 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 give us a call here at Bankruptcy Experts Rockhampton on 1300 795 575 or visit our website to find out more: www.bankruptcyexpertsrockhampton.com.au