Australia’s Household Debt Crisis Looms

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Australia’s Household Debt Crisis Looms

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

This bubble is simple to illustrate. Confidence! It’s the mistaken perception that Australia’s last 20 years of continual economic growth will never encounter any sort of correction is most unsettling. Australia survived the GFC and a mining boom and bust. Meanwhile, Sydney and Melbourne house prices have not skipped a beat or taken a backward step. Regrettably, the decision makers and powerful elite in this country live in these two cities, and see Australia’s economic obstacles through an entirely different lens to the rest of the country. It’s a two-speed economy spiralling out of control.

I accept that this looming crisis isn’t just as straightforward as house prices in our two biggest cities, but the median house prices in these cities are ever rising and contribute considerably to overall household debt. The boffins in Canberra appreciate there’s an overheated house market but appear to be loathed to take on any substantial measures to correct it for fear of a house crash.

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

One of the warning signs that confirm the household debt crisis we are beginning to see is the surge in the bankruptcy numbers over the entire country, especially in the 2017 March quarter.


In the insolvency sector, our firm are seeing the devastating effects of house prices going backwards. While it is not the primary cause of personal bankruptcies, it definitely is a crucial 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. 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 level of debt varies considerably 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 subsequently 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 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 need to know more about the looming household debt crisis then give us a ring here at Bankruptcy Experts Tennant Creek on 1300 795 575 or visit our website to find out more:

By | 2017-11-15T02:05:48+00:00 September 14th, 2017|Bankrupt, Blog|0 Comments

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