RBA Downplays Concerns over Interest Rate Impact on Australian Housing Market

The Reserve Bank of Australia (RBA) has downplayed concerns about financial stability in the face of soaring interest rates, saying that most Australians have sufficient cash flow and savings to mitigate downturns. Despite a steep six-month price decline, only around five per cent of mortgages would fall into negative equity if housing prices were to fall 20 per cent from current levels, according to RBA modelling.

The bank's half-yearly Financial Stability Review reported that mortgage holders are realistically capable of absorbing shocks to the market. The review noted that the vast majority of owners have positive equity due to the post-pandemic house price run, and that lenders have maintained high standards since a three per cent buffer was instated.

RBA governor Michele Bullock emphasized that the bank had to act on interest rates for the good of all Australians. She said, 'Pay packets don't go as far as they used to, and that's why we need to stop this high inflation.' The RBA lifted interest rates by 25 basis points on Tuesday, taking them to a 15-year high of 4.6 per cent.