Household Debt

household

Australian households have more debt compared to the size of the country’s economy than any other in the world. As of the third quarter of 2015, it now has the world’s most indebted household sector relative to GDP, according to LF Economics’ analysis of national statistics.

The overwhelming majority of this debt is mortgage debt, with investors and homeowners, mainly new and marginal entrants, having massive mortgages.

The data from LF Economics points to the largest housing bubble on record with the house prices from 1996 – 2015 rising by 141% and our income, inflation and construction costs not keeping up.

So what does that mean? Well in order to address this issue it will possibly mean bursting the said bubble and picking up the financial pieces as home owners face the possibility of having huge mortgages on a house that is worth less than their mortgage, this is called negative equity or upside down in their own homes.

Does this mean people should just not buy a house? Definitely not, it means home buyers need to be smarter in their decision making. Ensure you don’t borrow more than you can afford, including a buffer for interest rate rises and most importantly don’t pay too much for the house. Look to suburbs that aren’t inflated in the property market, look at a home that needs work, as you’d get it for a better price and can spend time doing it up, using your income, and ultimately increasing its worth.

Lastly to protect yourself against household debt make sure you do your research and more importantly have a solid household budget and stick to it!

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