Australia’s Household Debt Crisis Looms



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

This bubble is very easy to describe. Confidence! It’s the false perception that Australia’s last twenty years of continual economic growth will never experience any kind 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 skipped a beat or taken a backward step. Unfortunately, the decision makers and powerful elite in Australia reside in these two cities, and see Australia’s economic obstacles through a totally different lens to the remainder of the country. It’s a two-speed economy spiralling out of control.

I concede that this emerging crisis isn’t just as straightforward as house prices in our two largest cities, however the average house prices in these cities are ever rising and contribute largely to overall household debt. The authorities in Canberra understand that there’s an inflamed house market but seem to be despised to take on any substantial actions 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 priorities. For Western Australia and Queensland specifically, the mining bust has sent real estate prices sinking downwards for years now.

One of the signs that illustrate the household debt crisis we are starting to see is the surge in the bankruptcy numbers throughout the entire country, particularly in the March 2017 quarter.


In the insolvency market, our team are witnessing the damaging effects of house prices going backwards. Though it is not the predominant cause of personal bankruptcies, it certainly is a decisive factor.

House prices going backwards is just part of the dilemma; 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 a lot more if you are a home owner than if you are not a home owner. I bankrupt people everyday and the quantity of debt fluctuates greatly 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 steady income and less likely to wind up bankrupt, so consequently 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 seems we are running into a wall at full speed, and there are not too many people suggesting we slow down. If you want to know more about the looming household debt crisis then call us here at Bankruptcy Experts Cairns on 1300 795 575 or visit our website for more information:

By | 2018-07-25T23:30:54+00:00 September 14th, 2017|Bankruptcy, blog|0 Comments

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