Australian homeowners could cope with higher interest rates and a downturn in the economy, the nation's top banker forecast last night.
Reserve Bank governor Glenn Stevens blamed the housing bubble, which has burst in some states, on banks giving away mortgages too cheaply.
Three interest rate rises this year, ordered by the Reserve Bank, are expected to knock some confidence out of the market which has started to return to health. There is speculation a fourth rate rise could hit as early as February. Mr Stevens said easier and cheaper access to loans was a prime reason for the skyrocketing prices of Australia's 8 million existing dwellings.
However, he said while some households had too much debt, there would not be great damage if the economy began to decline. The prediction was based on a Reserve Bank analysis, which tipped people would trim their spending habits rather than lose their house. Economists are now punting that the Reserve Bank could order yet another rates rise in a bid to cool the economy. Slower economic growth could halt that move but the jobs market in Australia remains red-hot. Mr Stevens gave no clear direction on the future movements of interest rates.
However, there was a hint that the central bank thought Australian households could cope with higher rates -- particularly through the indication that people would reduce their spending. Mr Stevens said the higher level of debt people had built up made them vulnerable to small changes in the economy. "A very large change in the household sector's balance sheets has made households more sensitive to changes in their circumstances,'' he said.
The RBA has tipped that if there was an economic downturn, it would be businesses which would be hit the hardest. Businesses supplying into discretionary consumer markets would feel the effect quite quickly, Mr Stevens said.
Source: Herald Sun
