Australia’s Household Debt Crisis Looms

Australias Household Debt Crisis Looms 1

Australia’s Household Debt Crisis Looms

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

This bubble is simple to spell out. Confidence! It’s the mistaken perception that Australia’s last 20 years of sustained economic growth will never encounter any type of correction is most troubling. Australia survived the GFC and a mining boom and bust. In the meantime, Sydney and Melbourne house prices have not skipped a beat or taken a backward step. Regrettably, the decision makers and powerful elite in Australia reside in these two cities, and see Australia’s economic hurdles through a completely different lens to the remainder of the country. It’s a two-speed economy spiralling uncontrollably.

I acknowledge that this impending 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 greatly to total household debt. The authorities in Canberra are aware of an inflamed house market but appear to be repugnant to take on any severe steps to correct it for fear of a housing crash.

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

One of the signs that demonstrate the household debt crisis we are starting to see is the rise in the bankruptcy numbers across the entire country, specifically in the 2017 March quarter.


In the insolvency market, our company are seeing the terrible effects of house prices going backwards. Although not the predominant cause of personal bankruptcies, it clearly is a crucial factor.

House prices going backwards is just part of the issue; the other thing is owning a home in Australia allows 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 varies substantially 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 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 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 seems we are running into a wall at full speed, and there are few people suggesting we slow down. If you wish to know more about the looming household debt crisis then phone us here at Bankruptcy Experts Darwin on 1300 795 575 or visit our website for more information:

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