Record high household debt worries RBA ahead of board meeting
Record high household debt is expected to be on top of the Reserve Bank’s board meeting’s agenda on Tuesday as the central bank worries about risks to the economy from a shock in the property market.
Though most experts concur that the first rate hikes won’t come soon, but the RBA will be faced with question on Tuesday on whether or not to follow other central banks in lifting the official cash rate.
Australian household debt in the March quarter was at 190 per cent of their yearly disposable income, an all-time high, RBA data showed. The record debt level is even higher than the US just before the financial crisis.
High household debt is know to frequently be a trigger for financial crises.
RBA Governor Philip Lowe had earlier noted that a combination of high household debt and slow wages growth was a sobering combination. (put PO link)
A combination of low interest rates, slow wages growth and surge in home prices fuelled by overseas investor demand and strong population growth have been cited as reasons.
Data from the RBA confirmed that Australia’s record household debt mountain is largely due to soaring property prices.
In the March quarter, Australian housing debt reached 135 per cent of annual disposable income, according to the RBA, breaking another record.
RBA minutes in March noted that there was a build-up of risks associated with the housing market.
However, Treasurer Scott Morrison said recently that regulatory tightening is working to cool the overheated property market without a hard landing.
"The data shows to date that we are moving towards a safe landing when it comes to housing markets in Sydney and the pendulum swinging back in the favour of home owners and first home buyers, which is good news," Morrison said in Sydney on Monday, according to The Australian Financial Review.
In March, the Australian Prudential Regulation Authority announced restrictions on interest-only loans in response to record high household debt levels and the measure was has been "fully supported by the government”, he said.
Interest-only loans must be restricted to 30 per cent of new residential mortgage loans, APRA said.