Buying a used car can be stressful. There is always a risk that you could end up with a lemon, and this could cost you thousands of dollars.
Yet half the people on the hunt for a used car admit they do not check under the car’s bonnet. If the engine sounds good, then it must be a good car, right? Wrong.
The engine is one of the most important parts of a vehicle. Looking under the bonnet of a car can tell you a lot about how the car runs.
Last September, Australia celebrated 25 years of uninterrupted economic growth. The Australian economic engine is sounding good.
The Australian Economy has grown 3.3%. The housing market prices keep on rising. Job data is strong, and unemployment is at a low 5.6%.
So everything is going great, right?
Debt Clogging Up The Aussie Economic Engine
According to Fitch Ratings, people are falling behind on their mortgage payments. The increase in mortgage arrears is caused by 30- to 60-day loans shifting to longer term loans of 90-plus days.
In its latest ‘Dinkum RMBS Index’ report (a study of Australian residential mortgage backed securities), Fitch Ratings said:
‘Historically, arrears that materialise in the first quarter are due to seasonal spending and tend to cure themselves in the next quarter. However, recent data indicates households that had financial difficulties in the March quarter also had them in June quarter.’
So, even with low interest rates, economic growth and low unemployment figures, people are having difficulty paying their mortgages.
Fitch Ratings blames underemployment for this. That is, part-time workers who want to work more hours than they are currently working, but, for whatever reasons, are unable to.
The fact is, part-time employment is on the rise, especially among men. According to the ABS, from December 2015 to August 2016, the number of part-time workers increased by 105,300, yet the number of fulltime workers decreased by 21,500.
Unemployment figures may look strong, yet underemployment is at a record high of 8.7%. And if you combine the number of unemployed people with those who are not working as much as they would like to, the figure is 14.3%.
That means around one in seven Australians are either looking for a job or have a job, but want to work more hours and can’t do so.
You see, the problem is that with the end of the mining boom, more people have shifted to the service sector. And this sector relies more on casual and part-time employment than on fulltime employment.
And with a combination of part-time jobs and low inflation, wages are barely growing.
Mix that with high property prices and increasing debt, and we could have a recipe for disaster.
Cheap debt is still encouraging people to buy property. Auction clearing rates in Sydney and Melbourne were above 80% last weekend.
Yet with salaries growing slowly, and fulltime job opportunities decreasing, mortgage payments may become an uphill battle for many families.
For The Daily Reckoning
PS: A fallout from too much global debt could be the catalyst that ignites the next great crisis of our time.
Yet according to The Daily Reckoning’s Vern Gowdie, we’re already in the throes of this crisis.
Vern is the Founder of The Gowdie Letter and Gowdie Family Wealth advisory services. As one of Australia’s top financial planners, Vern says the next crisis is already in motion.
Australia has gone through two credit bubbles in its history. The third, and latest, has built up over the past 65 years. When it pops, the impact will leave a lasting mark. One that will make the 2008 financial crisis look like child’s play.
The fallout of this crash could damage your wealth. But you can safeguard your wealth from the worst effects of the coming crisis, provided you act now.
Vern will show you how to do this, and more, in his latest report, ‘Global Financial Crisis 2016: 3 Crisis Scenarios, and How They’ll Impact Australia’. To get your free copy today, click here.