Today in the news, former economics advisor John Adams revealed that Australia is too late to prevent an ‘economic apocalypse’ regardless of his continual warnings to the political elites in Canberra. He proceeded to advise the Reserve Bank to raise interest rates to prevent household debt getting further out of control.
This bubble is easy to describe. Confidence! It’s the misconstrued perception that Australia’s last twenty years of continual economic growth will never experience any form 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. Regrettably, the decision makers and powerful elite in this country reside in 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 concede that this impending crisis isn’t just as straightforward as house prices in our two largest cities, however the average house prices in these cities are ever rising and contribute largely to total household debt. The boffins in Canberra realise there’s an overheated house market but seem to be detested to take on any serious steps to correct it for fear of a house crash.
As far as the remainder of the country goes, they have an entirely different set of economic concerns. For Western Australia and Queensland specifically, the mining bust has sent property prices sinking downwards for years now.
Just one of the signs that confirm the household debt crisis we are starting to see is the surge in the bankruptcy numbers across the entire country, specifically in the March 2017 quarter.
In the insolvency market, our experts are inspecting the disastrous effects of house prices going backwards. While it is not the leading cause of personal bankruptcies, it evidently is a pivotal factor.
House prices going backwards is just part of the dilemma; 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 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 fluctuates substantially 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 consistent income and less likely to wind up bankrupt, so consequently 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 need to know more about the looming household debt crisis then give us a call here at Bankruptcy Experts Gladstone on 1300 795 575 or visit our website for additional information: www.bankruptcyexpertsgladstone.com.au