Whenever a financial advisor talks publicly about the huge rise in housing costs in Australia there is a warning about the impending bursting of the bubble. The debt rate per household is, according to the majority of such experts, far above sustainability. This scenario is seen in communities as well where businesses are closing and trade is markedly down. While credit cards are maxed out to the limit most are struggling to put food on the table.
So crippled with debt are the mortgage holders of a large percentage of homes that it is only a matter of time before the bubble bursts. Homes have risen in price at such a rate that anyone wanting to get into a home has to enter a contract that is way above their ability to repay the debt.
Some are calling this the perfect storm because people have entered into such agreements when they were employed in good jobs, their future was secure, and interest rates low. This situation is now rapidly changing as many are now unemployed, reduced incomes (for one reason or another) has also hit, and wages have stagnated.
The government has simply applied too much pressure and by allowing things like negative gearing it has increased the price of homes as investors flock to buy up what they can. The result is that rents have also soared and left greater numbers homeless because of an inability to pay what landlords demand.
When the rapid change of Prime Ministers took the country into new territory during the last 5 years it also meant inconsistency in the housing business. While mortgage interest rates are low and attractive for buyers the interest on credit has soared. This had led to a snowballing of debt and an inability for a huge number to meet it.
The outlook is dire and it is being compared to the USA before the melt-down happened there, which triggered the Global Financial Crisis.
The biggest businesses in Australia are the four major banks and they are making super profits. They have the security of knowing that if purchaser default they can seize the assets. The question in how worthwhile will they be in the light of what is now inevitable. Once the housing market collapses who knows how far it will go?
Governments are prone to prop up the banks in such a crisis and one wonders whether the strategy for dealing with such an event is not their fault. While politicians have access to the best economic brains they don’t appear to be doing a very good job. My sympathy is to the ones who will be devastated by what must now be inevitable.