RBA On Household Risks

In the financial stability report today, the RBA comments:

“Household sector risks continue to revolve largely around the housing and mortgage markets. At this stage, competitive pressures have not induced a material  easing in non-price housing lending standards. The composition of new mortgage finance remains skewed to investors, however, particularly in the largest cities. Ongoing strong speculative demand would tend to amplify the run-up in housing prices and increase the risk that prices in at least some regions might fall significantly later on. In the first instance, the consequences of such a downturn in prices are more likely to be macroeconomic in nature because of the effects on household wealth and spending would be spread more broadly than just on the recent property purchasers. However, the further housing prices fall in that scenario, the greater the chance that lenders would incur losses on their housing loans.

At the margin, the recent decline in mortgage interest rates can be expected to boost demand for housing further, although it will also make it easier for existing borrowers to service their debts. Indicators of household stress are currently at low levels, but could start to increase if labour market conditions weakened further than currently envisaged”.

They go on to discuss the APRA and ASIC measures and say it is too soon to assesses their effectiveness.  Not, to worry though, as they are “monitoring an array of information”. Too little too late in my view. Actually households are currently more in debt than ever, so levels of stress are in relative terms higher. If rates were to rise, or if house prices fell, the impact would be severe and immediate (in Ireland it took just nine months to wreck household budgets in 2007).

Author: Martin North

Martin North is the Principal of Digital Finance Analytics

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