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

This bubble is easy to express. Confidence! It’s the inaccurate perception that Australia’s last 20 years of continued economic growth will never experience any kind of correction is most worrying. Australia survived the GFC and a mining boom and bust. At the same time, Sydney and Melbourne house prices have not skipped a beat or taken a backward step. Regretfully, the decision makers and powerful elite in Australia 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 out of control.

I concede 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 largely to overall household debt. The specialists in Canberra recognise there’s an overheated house market but appear to be despised to take on any severe steps to correct it for fear of a house crash.

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

One of the warning signs that demonstrate the household hpw debt crisis we are beginning to see is the increase in the bankruptcy numbers across the entire country, specifically 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 company are noticing the harmful effects of house prices going backwards. Though it is not the primary cause of personal bankruptcies, it clearly is a critical factor.

House prices going backwards is just part of the issue; 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 far more if you are a home owner than if you are not a home owner. I bankrupt people everyday and the amount of debt fluctuates significantly 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 stable income and less likely to end up bankrupt, so in turn 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 not too many people suggesting we slow down. If you want to know more about the looming household debt crisis then give us a ring here at Bankruptcy Experts Rockingham on 1300 795 575 or visit our website for more information: www.bankruptcyexpertsrockingham.com.au