While Australia is well-placed, some parts of the housing market would feel the pinch
While Australia is well-placed to weather a possible global recession, there are “pockets of stress” in the housing market, according to the chair of the Australian Prudential Regulation Authority.
Wayne Byres, who is stepping down as APRA chair at the end of the month, said the regulator was watching global developments closely and was not complacent about risks to the Australian economy, The Australian reported.
“We’re a small boat in a big ocean and if world financial markets are unstable and volatile, we’ll get tossed around and maybe take on some water ourselves,” Byres told the publication at a FINSIA event Wednesday. “But we shouldn’t assume just because there are problems overseas, they’ll be replicated here … In the broader economic context, actually, we’re still growing as a country, unemployment is still incredibly low, our inflation is not as high as other countries. The financial system is much, much stronger today than it was, say, going into the GFC. Bank capital is higher … it’s more liquidity, better funding profile.”
Byres said that APRA had stress-tested Australia’s financial system against “some pretty big shocks” – and while a global recession would cause some adverse impacts, it wouldn’t undermine the stability of the country’s financial system.
However, Byres said that a recession would cause “pockets of stress” in the housing market following multiple interest rate increases.
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He said the APRA was happy with its interest rate serviceability buffer at 3%. The regulator raised the buffer from 2.5% late last year.
“I feel comfortable with where it is at present; we’re not thinking that it needs to be raised again,” he told The Australian.
During his address at the event, Byres told attendees that Australia was dealing with an environment of rising interest rates and tumbling house prices. He said the latter could be viewed as a positive for affordability but would negatively impact some borrowers.
“Both are occurring sooner, and at a faster rate, than most people anticipated a year ago,” Byres said. “Borrowers with only a small equity buffer and/or high levels of leverage relative to their income will be particularly challenged. Borrowers currently on very low fixed rates face a significant repayment shock in the future.”
