Mortgages and rents are rising. Landlords are being forced to pass on their increased mortgage costs to renters and with a shortage of rental properties, rents are increasing to enormous levels. People looking for a rental property; have to vigorously compete with a many others - often finding themselves in a "bidding war". Economic analysts have forecast a 20% to 50% rise in house prices and rents based on supply and demand fundamentals.

Added to this, wage increases have not been able to keep up with other costs such as petrol and food and debt servicing. The question here is how much can working Australian's take before something breaks?

Mortgage borrowers have adjusted their attitudes in comparison to years gone by. In the past for instance, people would borrow funds taking into account their cost of living and their servicing capacity.

In contrast, the latest economic data shows borrowers adjust their "normal" consumption to retain home ownership in times of hardship. This said when the cost of living increases (i.e. increased consumables, food prices, petrol and interest rates) people heavily geared with debt can go to the wall.

In such circumstances people will be forced to alter spending and lifestyle patterns. More people will share accommodation, move into smaller houses (slum landlords rejoice), move back in with parents or move out of the cities and into the country.

Given the high levels of household debt and tightening of credit policies in the wake of the sub prime credit crisis, any short term relief looks doubtful.

In this environment, people need to re-examine their budgets and focus their efforts on reducing household debt. They should look at ways to increase their earnings and reconsider their investment strategies, opting for a lower risk conservative approach in order to weather the storm. In this way, and relying on the cyclic nature of economies, people will stand a better chance of emerging from the present conditions with mitigated effects.