No alarms bells just yet
RBA says risks ‘heightened but contained’
THE Reserve Bank has said economic risks from household debt and the housing market slowdown have increased over the past five months, but not enough to set alarm bells ringing.
RBA assistant governor Michelle Bullock said yesterday that vulnerabilities highlighted in the central bank’s last financial stability review remained and “if anything, they are a little more heightened”.
“But the impacts are not large enough to result in widespread problems in the financial sector,” Ms Bullock told the Urban Development Institute of Australia in Perth.
“This is not to downplay the financial stress that some households are experiencing, but most of the debt remains well secured against property, even with the decline in housing prices.”
Ms Bullock said total repayments as a share of income had remained steady, while many RBA assistant governor Michelle Bullock comments on current heightened economic vulnerabilities households had built up substantial overpayment reserves.
“Broadly, the debt is held by households that can afford to service it,” she said, adding that banks remained well capitalised and arrears remained low.
Ms Bullock did, however, call out the dangers from a potential apartment glut as blocks with long development times come online while the market is weakened. She said falling prices due to oversupply would hit both developers and off-the-plan buyers, with knock-on effects for consumption that is already a concern to the RBA.
“Lenders will revise their valuations down and so will be willing to lend less,” Ms Bullock said.
“Households will therefore have to contribute more funds, either from their own savings or loans from other sources.”