The Reserve Bank Financial Stability Review

The Reserve Bank (RBA) released their bi-annual Financial Stability Review in late September specifically relating to the household sector, the review noted, ‘household and business sectors have continued to display a relatively prudent approach towards their finances in recent quarters.

Many households continue to prefer saving and paying down their existing debt more quickly than required, which has contributed to household credit growth being more in line with income growth in recent years. Although there are some isolated pockets of weakness, aggregate measures of financial stress remain low.

Ongoing consolidation of household balance sheets would be desirable from a financial stability perspective, as it would make indebted households better able to cope with any future income shock or fall in housing prices.’ The review noted that mortgage arrears have declined to slightly below 0.6% of all loans.

Although it is low in comparison to other countries, it remains above the historical average.

Much of the economic data both locally and internationally has been quite weak over the past month however, this doesn't necessarily mean that a cut to interest rates is a foregone conclusion.

Although commodity prices have weakened and many other economic indicators have been quite weak, there has been a noticeable improvement in the performance of the housing market.

Values across the five major capital cities have now risen by 0.4% over the year to-date and have increased by 1.2% over the first three weeks of September.

The recent improvement in home values may provide the RBA with the impetus to not cut rates further at this time for fear of driving home values higher like what occurred in late 2008/early 2009.

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