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

This bubble is very easy to understand. Confidence! It’s the misguided perception that Australia’s last twenty years of sustained economic growth will never encounter any kind of correction is most disconcerting. Australia survived the GFC and a mining boom and bust. In the meantime, Sydney and Melbourne house prices have not skipped a beat or taken a backward step. Regretfully, the decision makers and powerful elite in Australia live in these two cities, and see Australia’s economic obstacles through an entirely different lens to the remainder of the country. It’s a two-speed economy spiralling uncontrollably.

I acknowledge that this looming crisis isn’t just as simple as house prices in our two biggest cities, however the average house prices in these cities are ever rising and contribute greatly to overall household debt. The boffins in Canberra are aware of an enflamed house market but appear to be reviled to take on any genuine efforts to correct it for fear of a house crash.

As far as the rest of the country goes, they have a completely different set of economic prerogatives. For Western Australia and Queensland particularly, the mining bust has sent property prices tumbling downwards for years now.

Just one of the signals that confirm the household debt crisis hpw we are starting to see is the rise in the bankruptcy numbers across the entire country, specifically in the 2017 March quarter.

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

In the insolvency market, we are noticing the devastating effects of house prices going backwards. While it is not the predominant cause of personal bankruptcies, it most certainly is an integral 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 differs considerably 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 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 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 not too many people suggesting we slow down. If you wish to know more about the looming household debt crisis then give us a call here at Bankruptcy Experts Tweed Coast on 1300 795 575 or visit our website for additional information: www.bankruptcyexpertstweedcoast.com.au