Australia’s Household Debt Crisis Looms

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

This bubble is simple to spell out. Confidence! It’s the deluded perception that Australia’s last twenty years of continued economic growth will never experience any kind of correction is most troubling. Australia survived the GFC and a mining boom and bust. At the same time, Melbourne and Sydney house prices have not missed 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 problems through an entirely different lens to the remainder of the country. It’s a two-speed economy spiralling uncontrollably.

I accept that this emerging crisis isn’t just as simple as house prices in our two biggest cities, however the median house prices in these cities are ever rising and contribute dramatically to total household debt. The boffins in Canberra recognise there’s an overpriced house market but seem to be detested to take on any focused efforts to correct it for fear of a house crash.

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

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


In the insolvency market, our firm are noticing the devastating effects of house prices going backwards. While it is not the predominant cause of personal bankruptcies, it most certainly is a significant factor.

House prices going backwards is just part of the challenge; 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 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 differs 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 steady income and less likely to wind 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 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 appears we are running into a wall at full speed, and there are very few people suggesting we slow down. If you would like to know more about the looming household debt crisis then call us here at Bankruptcy Experts Melbourne on 1300 795 575 or visit our website for more information:

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