Sombre RBA keeps close watch on housing shifts
HIGH household debt and shrinking economic growth were clouding Australia’s financial stability, while the property price slump in Melbourne and Sydney could lead to a renewed tightening of credit, the Reserve Bank said yesterday.
It said that while domestic economic conditions remained broadly supportive of financial stability, risks to the household sector had increased during the past six months given weak house prices.
But economists said the sombre outlook in the central bank’s latest Financial Stability Review reflected an earlier shift in its thinking, rather than anything new.
The half-year report card said continued deterioration of the housing market would weigh on subdued consumption, while increasing the share of borrowers in negative equity.
“Housing constitutes a large share of households’ wealth and further large declines in housing prices could cause households to pull back on consumption, particularly for those who are highly leveraged,” the RBA said.
“This, in conjunction with falling dwelling investment, could add to rising unemployment … such a scenario would have adverse consequences for financial stability to the extent that it increases both households’ likelihood of default and the losses banks would experience in the event of default.”
The RBA also said that banks may further tighten credit.
ANZ said while the RBA was clearly more sombre than it was in October, it judged the financial system to be more resilient.