Australia's household debt is now among the highest in the developing world, leading the Reserve Bank to raise concerns about the effect of household indebtedness on the economy.
In the minutes of its July board meeting, the Reserve Bank discussed the state of household debt, putting an end to speculation that it may soon increase interest rates.
The RBA last cut the cash rate in August 2016 from 1.75 per cent to 1.5 per cent.
The bank noted that household debt has outweighed household income over the past three decades in many countries, but particularly so in Australia.
"Two key drivers of this trend across countries have been the decline in nominal interest rates, lower inflation and financial deregulation both of which have increased households' access to finance," the minutes noted.
Based on survey data, the board noted that much of Australian household debt is owed by higher-income and middle-aged people “who tend to have more stable employment and often larger savings buffers”, adding that a significant proportion of those struggling with high debt are low income earners.
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"A distinguishing feature of the Australian housing market is that the bulk of dwellings are owned by the household sector."
"This has contributed to greater borrowing for housing by households in Australia compared with other countries, where the corporate sector owns a larger proportion of rental properties."
"Another feature of the Australian housing market that has contributed to greater borrowing by households is the higher cost of housing in Australia on account of a larger share of the Australian population living in urban centres, typically in large detached dwellings."
In Sydney and Melbourne's well-established housing markets, housing prices had declined following significant increases in previous years.
Housing prices had fallen by almost 5 per cent in Sydney over the preceding year.
Lending standards are now tighter with the introduction of APRA's supervisory measures causing investors to walk away from the market.
Members observed that prices in Sydney and Melbourne had fallen significantly for more expensive properties, while prices of lower-priced properties had been little changed, consistent with the typical pattern of larger fluctuations in prices at the higher end of the market.
In the other state capitals, housing prices had been fairly steady, with the exception of Hobart, where prices had picked up markedly given strong demand and supply constraints.
