This speech discusses household debt and housing prices. It examines aggregate trends and their causes, how debt is distributed across the community and how levels of debt and housing prices affect the economy and its resilience to future shocks.

The speech begins by looking at the ratios of nationwide housing prices and household debt to household income. It illustrates that, while the debt-to-income ratio has increased over recent years, the ratio of debt to the value of the housing stock has not. This situation is said to reflect a large increase in housing prices as well as growth in the number of homes.

The speech discusses the supply and demand factors that have influenced housing prices in Australia. It notes the significant differences in outcomes across the country, despite a common nationwide interest rate. It also discusses the role of borrowing, including by investors, in amplifing the pressure on prices coming from supply-demand dynamics.

The speech moves on to discuss the distribution of debt. It describes how the rise in the debt-to-income ratio has been most pronounced for higher-income households. This is said to provide a contrast to events in the United States prior to the subprime crisis, when many lower-income households borrowed heavily.

On the implications of the current situation for the economy and its resilience, the speech explains the reasons for the Bank's recent focus on risks related to household debt and housing prices. Given the current high levels of debt and housing prices, relative to incomes, it is said to be likely that some households could respond to a future shock to income or housing prices by deciding they have borrowed too much. The speech explains that, should households sharply cut back on their spending under these circumstances, an otherwise manageable downturn could be turned into something more serious.

The speech concludes that the recent increase in household debt relative to incomes has made the economy less resilient to future shocks. In this context, the speech repeats the Bank's strong support for banking sector supervisory measures recently announced by the prudential regulator, APRA.

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