RBA: Households and Businesses Can Weather Economic Downturn

The Reserve Bank of Australia (RBA) has released its Financial Stability Review, stating that households and businesses can withstand a slower economy and falling house prices.

In the report, the RBA notes that even if house prices drop by an additional 20%, only about 5% of mortgages would be in negative equity. Currently, less than 1% of borrowers are already in negative equity, with household balance sheets remaining strong.

The banks themselves appear to be well-positioned to weather a significant decline in the housing market, and while there may be pockets of stress among households and businesses, overall they remain resilient. This is reflected in low loan arrears and a share of owner-occupier borrowers with cash flow shortfalls that remains relatively low at around 2%.

The RBA does highlight some areas where cash flow pressures are expected to increase for smaller businesses and energy-intensive firms, but notes that lending standards remain sound. However, the report also warns of major risks to domestic financial stability stemming from abroad, as well as growing concerns over AI funding globally becoming more opaque and subject to profit disappointment.