RBA Speech: The Housing Market and Financial Stability

RBA Assistant Governor, Michele Bullock, gave a speech on the Housing Market and Financial Stability

“Although it is not property prices per se that we care about from a financial stability perspective, developments in the housing market (including prices) provide information on the emergence of financial stability risks

“Given the potential for risks to be building, there is a question about what the authorities can do aside from monitor developments. Unlike in 2014 and 2017, the concerns this time are not specific types of lending such as investor or interest only lending.

“So the tools used at that time are not really appropriate at this time. This suggests that if there were to be a need for so-called macro-prudential tools to address rising risks, they should be targeted at the risks arising from highly indebted borrowers. Tools that address serviceability of loans and the amount of credit that can be obtained by individual borrowers are more likely to be relevant.

“A high level of debt could pose risks to the economy in the event of a shock to household incomes or a sharp decline in housing prices.”

Michele Bullock Assistant Governor (Financial System) RBA

“The unprecedented monetary and fiscal support to the Australian economy through the pandemic has helped ‘build a bridge’ to the other side. The strong recovery in the housing market is part of that bridge. But with the increase in housing prices and housing debt, risks to financial stability could be building.

“Even though the banks have strong balance sheets and lending standards are being maintained, there is a risk that in this environment, households will become increasingly indebted. A high level of debt could pose risks to the economy in the event of a shock to household incomes or a sharp decline in housing prices.

“It is these macro-financial risks that warrant close watching. Whether or not there is need to consider macro-prudential tools to address these risks is something we are continually assessing.

Full speech available at the RBA website.

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