Today in the news, former economics advisor John Adams said that Australia is too late to avoid an ‘economic apocalypse’ despite his repeated warnings to the political elites in Canberra. He went on to advise the Reserve Bank to raise interest rates to stop household debt getting further out of hand.
This bubble is simple to explain. Confidence! It’s the unfounded perception that Australia’s last 20 years of sustained economic growth will never experience any kind of correction is most distressing. Australia survived the GFC and a mining boom and bust. Meanwhile, Sydney and Melbourne house prices have not missed a beat or taken a backward step. Sadly, the decision makers and powerful elite in this country are from these two cities, and see Australia’s economic hurdles through an entirely different lens to the remainder of the country. It’s a two-speed economy spiralling uncontrollably.
I recognise that this emerging crisis isn’t just as simple as house prices in our two largest cities, but the median house prices in these cities are ever rising and contribute substantially to total household debt. The experts in Canberra realise there’s an overheated house market but seem to be despised to take on any substantial measures to correct it for fear of a property crash.
As far as the remainder of the country goes, they have a completely different set of economic considerations. For Western Australia and Queensland specifically, the mining bust has sent real estate prices sinking downwards for years now.
One of the signals that demonstrate the household debt crisis we are beginning to see is the surge in the bankruptcy numbers across the entire country, particularly in the March 2017 quarter.
In the insolvency market, our firm are noticing the incapacitating effects of house prices going backwards. Although not the primary cause of personal bankruptcies, it certainly is an integral factor.
House prices going backwards is just part of the predicament; 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. Put simply, you can borrow a lot more if you are a home owner than if you are not a home owner. I bankrupt people everyday and the amount of debt differs dramatically 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 steady income and less likely to end up bankrupt, so in turn 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 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 call us here at Bankruptcy Experts Gosford on 1300 795 575 or visit our website to find out more: www.bankruptcyexpertsgosford.com.au