Reserve Bank of Australia: Households, businesses can weather slower economy, falling house prices

In its Financial Stability Review (FSR) published on Thursday,  the Reserve Bank of Australia (RBA) said that “households and businesses are well placed to weather a slower economy and falling house prices.”

Additional takeaways

Even if house prices fell a further 20%, only 5% of mortgages would be in negative equity.

Less than 1% of borrowers in negative equity, houshold balance sheets remain strong.

Banks well positioned to weather a material deterioration in housing market.

Pockets of stress in households and business, but resilient overall with low loan arrears.

Most businesses well placed to manage elevated costs, some passing on to customers.

Share of owner-occupier borrowers with cash flow shortfall still low at around 2%.

Cash flow pressures to increase for smaller businesses, energy-intensive firms.

Major risks to domestic financial stability coming from abroad.

Lending standards remain sound, riskier forms of lending restrained.

AI funding globally is growing more opaque, circular and at risk of profit disappointment.

Private credit not yet a threat to overall financial stability in Australia.

Private credit has grown significantly in Australia, but still only small overall.

Rise of leveraged investors in bonds, AI equities amplifies volatility and adds to risks.

High asset prices, leverage mean world markets vulnerable to disruptive pullback.