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 revealed that Australia is too late to prevent an ‘economic apocalypse’ regardless of his repeated warnings to the political elites in Canberra. He went on to insist the Reserve Bank to raise interest rates to avoid household debt getting further out of control.

This bubble is simple to illustrate. Confidence! It’s the misconstrued perception that Australia’s last 20 years of continual economic growth will never encounter any sort of correction is most distressing. Australia survived the GFC and a mining boom and bust. Meanwhile, Melbourne and Sydney 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 obstacles through a totally different lens to the rest 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, however the median house prices in these cities are ever rising and contribute considerably to overall household debt. The boffins in Canberra understand that there’s an inflamed house market but appear to be repugnant to take on any serious measures to correct it for fear of a housing crash.

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

Just one of the signs that demonstrate the household debt crisis we are starting to see is the surge in the bankruptcy numbers across the entire country, especially in the 2017 March quarter.


In the insolvency sector, our team are encountering the damaging effects of house prices going backwards. Even though it is not the primary cause of personal bankruptcies, it most certainly is a decisive factor.

House prices going backwards is just part of the problem; the other thing is owning a home in Australia enables lenders to put you in a very different space as far as borrowing capacity. Simply put, 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 substantially 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 reliable income and less likely to wind up bankrupt, so consequently 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 not too many people suggesting we slow down. If you want to know more about the looming household debt crisis then give us a call here at Bankruptcy Experts Shepparton on 1300 795 575 or visit our website to find out more:

By | 2018-08-03T03:17:04+00:00 September 18th, 2017|Bankrupt, Liquidation|0 Comments

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