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Australia’s Household Debt Crisis Looms

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Australia’s Household Debt Crisis Looms

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

This bubble is easy to understand. Confidence! It’s the mistaken 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. In the meantime, Melbourne and Sydney house prices have not missed a beat or taken a backward step. Regrettably, the decision makers and powerful elite in this country are from these two cities, and see Australia’s economic problems 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, however the average house prices in these cities are ever rising and contribute considerably to overall household debt. The authorities in Canberra recognise there’s an overheated house market but appear to be detested to take on any serious actions 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 prerogatives. For Western Australia and Queensland especially, the mining bust has sent property prices tumbling downwards for years now.

Just one of the signals that confirm the household debt crisis we are beginning to see is the surge in the bankruptcy numbers over the entire country, particularly in the 2017 March quarter.


In the insolvency market, our team are noticing the distressing effects of house prices going backwards. Even though it is not the prime cause of personal bankruptcies, it undoubtedly is an integral factor.

House prices going backwards is just part of the challenge; the other thing is owning a home in this country allows 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 level of debt differs dramatically from the non-home owner to the home owner. Lending is hinged on algorithms and risk, so I suppose if you own a home you’re more likely to have stable income and less likely to wind up bankrupt, so subsequently 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 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 Emerald on 1300 795 575 or visit our website to find out more:

By | 2018-07-27T05:53:49+00:00 September 14th, 2017|Article, Bankruptcy, Blog|0 Comments

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