RBA: Rising Housing Prices Reduced Near-Term Risks To Household Balance Sheet

By Sophia Rodrigues

(Sydney, April 9, 2021) -- Rising housing prices have reduced near-term risks to household balance sheets, and further rise could affect housing affordability only if household income growth slows, the Reserve Bank of Australia said Friday.

In the twice-yearly Financial Stability Review publication, the RBA didn’t raise any concerns for households from rising housing prices and highlighted risks from a financial stability perspective only if sustained period of rising prices leads to increased risk-taking and leverage in an environment of accommodative financial conditions.

Overall, the report said that risks of large-scale defaults on housing and business debt have reduced as economy outcomes have exceeded expectations, and temporary policy measures have supported their cash flows.

Still, some increase in stress is likely as temporary support measures progressively end and borrowers deplete financial buffers, the RBA said.

The share of heavily indebted households and businesses that derive their incomes from sectors most heavily affected by the pandemic is small, and hence any rise in lenders’ non-performing loan ratios are expected to be modest from current low levels.

The RBA said the nature of risks in the housing markets have changed over the past six months but most households remain in a good position to service their debt, and only a small share of households are “vulnerable.”

Among them the share of one group of “risky” borrowers  -- ones with persistently small prepayment buffers – have declined to around 10% of all loans form around 15% a year ago, the RBA said.

--Contact: Sophia@centralbankintel.com