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

This bubble is very easy to spell out. Confidence! It’s the misled perception that Australia’s last 20 years of continual economic growth will never encounter any form of correction is most disturbing. Australia survived the GFC and a mining boom and bust. Meanwhile, Melbourne and Sydney house prices have not missed a beat or taken a backward step. Unfortunately, the decision makers and powerful elite in this country reside in these two cities, and see Australia’s economic challenges through an entirely different lens to the remainder 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, however the average house prices in these cities are ever rising and contribute greatly to total household debt. The specialists in Canberra are aware of an enflamed house market but appear to be loathed to take on any substantial measures to correct it for fear of a property crash.

As far as the remainder of the country goes, they have a totally different set of economic concerns. For Western Australia and Queensland particularly, the mining bust has sent real estate prices plumetting downwards for years now.

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

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

In the insolvency sector, our firm are witnessing the terrible effects of house prices going backwards. Even though it is not the leading 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 much more if you are a home owner than if you are not a home owner. I bankrupt people everyday and the extent of debt varies considerably 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 consistent income and less likely to end 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 seems we are running into a wall at full speed, and there are few people suggesting we slow down. If you want to know more about the looming household debt crisis then get in contact with us here at Bankruptcy Experts Albury on 1300 795 575 or visit our website for additional information: www.bankruptcyexpertsalbury.com.au