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

This bubble is very simple to explain. Confidence! It’s the mistaken perception that Australia’s last 20 years of continued economic growth will never experience any form of correction is most unsettling. 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. Unfortunately, the decision makers and powerful elite in Australia live in 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 out of control.

I acknowledge that this impending crisis isn’t just as straightforward as house prices in our two biggest cities, but the average house prices in these cities are ever rising and contribute substantially to overall household debt. The experts in Canberra recognise there’s an inflamed house market but seem to be reviled to take on any genuine measures to correct it for fear of a housing crash.

As far as the remainder of the country goes, they have an entirely different set of economic prerogatives. For Western Australia and Queensland specifically, the mining bust has sent real estate prices tumbling downwards for years now.

Among one of the signals that hpw illustrate the household debt crisis we are beginning to see is the rise in the bankruptcy numbers throughout the entire country, specifically in the 2017 March quarter.

(source: https://www.afsa.gov.au/about-us/newsroom/media-release-regional-personal-insolvency-statistics-march-quarter-2017).

In the insolvency market, we are encountering the terrible effects of house prices going backwards. Though it is not the main cause of personal bankruptcies, it certainly is a significant factor.

House prices going backwards is just part of the dilemma; 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 far 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 largely from the non-home owner to the home owner. Lending is based upon algorithms and risk, so I suppose if you own a home you’re more likely to have reliable 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 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 phone us here at Bankruptcy Experts Gympie on 1300 795 575 or visit our website to find out more: www.bankruptcyexpertsgympie.com.au