Australian Households Bearing Up to Soaring Rates for Now

By James Glynn

SYDNEY--Australian households are largely bearing up to the pain of record-high interest rates and soaring living costs, with few signs that mortgage payers are defaulting in large numbers, albeit some are choosing to simply sell properties to avoid falling into arrears.

According to the Reserve Bank of Australia's latest report card on financial stability, less than 0.01% of loans outstanding are estimated to be both in arrears and in negative equity, or where the value of the property has fallen below the purchase price.

Liaison with lenders suggests that an increasing share of struggling borrowers are taking up the option to sell their homes before they fall behind on their loan repayments, the RBA said in its latest financial stability review.

Australia's housing market is one of the most expensive and indebted in the world, with economists warning that a surge in defaults would expose a key vulnerability of the commodity-rich economy.

House prices have continued to rise over recent years even though the RBA raised interest rates at a record pace, lifting interest repayments on housing loans by between 30% and 60%.

A key support for the housing market continues to be a historically low unemployment, while the RBA did not raise interest rates as much as other central banks in response to high inflation in the period after the pandemic.

The share of variable-rate owner-occupier borrowers who are estimated to have had essential expenses and scheduled mortgage repayments exceed their income, leading to an estimated cash flow shortfall, has remained at around 5%, the RBA said.

Write to James Glynn at james.glynn@wsj.com

(END) Dow Jones Newswires

September 25, 2024 23:02 ET (03:02 GMT)

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