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

 

This bubble is simple to illustrate. Confidence! It’s the misled perception that Australia’s last twenty years of continual economic growth will never encounter any type of correction is most worrying. 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. Regrettably, the decision makers and powerful elite in Australia live in these two cities, and see Australia’s economic challenges through a completely different lens to the remainder of the country. It’s a two-speed economy spiralling out of control.

 

I accept that this impending crisis isn’t just as simple as house prices in our two largest cities, however the median house prices in these cities are ever rising and contribute dramatically to overall household debt. The specialists in Canberra are aware of an overpriced house market but appear to be repugnant to take on any focused efforts to correct it for fear of a property crash.

 

As far as the rest of the country goes, they have a totally different set of economic prerogatives. For Western Australia and Queensland especially, the mining bust has sent house prices plumetting downwards for years now.

 

Among one of the warning signs that illustrate the household debt crisis we are beginning to see is the surge in the bankruptcy numbers over the entire country, particularly 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 sector, our team are seeing the adverse effects of house prices going backwards. While it is not the main cause of personal bankruptcies, it evidently is a crucial 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 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 differs greatly 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 wind 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 wish to know more about the looming household debt crisis then phone us here at Liquidation Service on 1300 795 575 or visit our website to find out more: www.liquidationservice.com.au

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