Reserve Bank of Australia Financial Stability Report

  • Risks around housing and mortgage markets seem higher than average
  • Bank lending standards were weaker than first seemed, have now been tightened
  • Says lending risks appear to be "comfortably manageable" at this stage
  • But regulators seeking a "permanently stronger" level of bank lending standards
  • Risks growing in commercial property sector due to investor demand
  • Sees risk of downturn in Melbourne, Brisbane apartment markets due to oversupply
  • Tentative signs that sentiment is turning in Sydney, Melbourne housing markets
  • Possible some banks may have to slow their home lending yet further
  • Indicators of household financial stress remain fairly benign
  • Key challenge will be to keep lending standards tight given environment of low rates

Headlines via Reuters

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Full text is here: Financial Stability Review

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A couple of points ... "Sees risk of downturn in Melbourne, Brisbane apartment markets due to oversupply".

  • Yes. Not a fresh piece of news: "This financial year we will reach an oversupply" (this especially relates to CBD developments in Melbourne)

A couple of points from the report today that didn't make it into the news wire headlines:

  • Attention has instead shifted to China and other emerging market economies. The growth outlook for a number of these economies has deteriorated against a backdrop of higher debt; in addition, lower commodity prices, fiscal pressure and political instability are compounding the situation in some cases.
  • There have been sizeable fluctuations in some equity and currency markets, with the large run-up in Chinese equity prices that began in 2014 now substantially reversed. The price movements in some financial markets, including in advanced economies, have, on occasion, been amplified by short periods of trading disruption, underlining concerns that some investors might be under-pricing liquidity risk. With the US Federal Reserve's first tightening since 2006 in prospect, the risk is that this combination of factors could trigger a sharp repricing in markets. However, while adding volatility to some markets in Australia, to date these global factors have not had a material impact on Australia's financial system. The domestic risks to financial stability in Australia continue to revolve mainly around developments in some local property markets. The risks surrounding housing and mortgage markets seem higher than average at present.
  • household and banking sectors are becoming better placed to manage the risk environment than they were a year or so ago

(Bolding is mine)

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AUD has slipped a little further (it was probing to session lows ahead of the report). I don't know how much of the weakness can be attributed to RBA language in the report ... At first reading it does appear quite dovish, but it is balanced and the risks it mentions are not new or extreme.

The RBA says they are being 'managed' well. Whether they will be if the risks get worse or compound is another matter I suppose. There's always the famous 'subprime is contained' quote to trot out (as it its not trotted out enough) to justify jumping at every shadow and/or if things go pear shaped.