Australia’s Household Debt Crisis Looms

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Australia’s Household Debt Crisis Looms

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Today in the news, former economics advisor John Adams revealed that Australia is too late to avoid an ‘economic apocalypse’ despite his repetitive warnings to the political elites in Canberra. He went on to urge the Reserve Bank to raise interest rates to stop household debt getting further out of control.

This bubble is very simple to express. Confidence! It’s the unfounded perception that Australia’s last 20 years of sustained economic growth will never encounter any sort of correction is most disturbing. Australia survived the GFC and a mining boom and bust. In the meantime, Melbourne and Sydney house prices have not skipped a beat or taken a backward step. Regretfully, the decision makers and powerful elite in this country reside in these two cities, and see Australia’s economic problems through a totally different lens to the rest of the country. It’s a two-speed economy spiralling uncontrollably.

I recognise that this looming crisis isn’t just as straightforward 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 realise there’s an overheated house market but seem to be loathed 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 completely different set of economic prerogatives. For Western Australia and Queensland especially, the mining bust has sent property prices tumbling downwards for years now.

Just one of the warning signs that confirm the household debt crisis we are beginning to see is the rise in the bankruptcy numbers across the entire country, particularly in the March 2017 quarter.


In the insolvency market, our company are observing the damaging effects of house prices going backwards. Although not the main cause of personal bankruptcies, it evidently is a decisive factor.

House prices going backwards is just part of the challenge; the other thing is owning a home in Australia enables lenders to put you in a very different space as far as borrowing capacity. To put it simply, 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 differs significantly 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 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 appears we are running into a wall at full speed, and there are very few people suggesting we slow down. If you wish to know more about the looming household debt crisis then call us here at Bankruptcy Experts Fremantle on 1300 795 575 or visit our website for additional information:

By | 2018-07-26T06:56:55+00:00 September 14th, 2017|article, Bankruptcy, Blog|0 Comments

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