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 indicated 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 control.

This bubble is very easy to understand. Confidence! It’s the misled perception that Australia’s last twenty years of continued economic growth will never experience any kind of correction is most disconcerting. 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. Unfortunately, the decision makers and powerful elite in this country live in these two cities, and see Australia’s economic challenges through a totally different lens to the rest of the country. It’s a two-speed economy spiralling uncontrollably.

I accept that this impending crisis isn’t just as straightforward as house prices in our two largest cities, but the average house prices in these cities are ever rising and contribute dramatically to total household debt. The specialists in Canberra realise there’s an overheated house market but seem to be loathed to take on any stern steps 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 prerogatives. For Western Australia and Queensland especially, the mining bust has sent house prices plumetting downwards for years now.

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


In the insolvency market, our experts are seeing the adverse effects of house prices going backwards. Though it is not the leading cause of personal bankruptcies, it definitely is a pivotal factor.

House prices going backwards is just part of the predicament; the other thing is owning a home in Australia 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 level of debt fluctuates dramatically 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 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 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 give us a ring here at Bankruptcy Experts Adelaide on 1300 795 575 or visit our website for more information:

By | 2020-08-17T01:17:41+00:00 September 17th, 2017|bankrupt, blog|0 Comments

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