Debt and soaring house prices put economy at risk

The Reserve Bank has sent out one of its most forceful messages yet on household debt and soaring house prices. In its quarterly statement, released on August 11, the RBA said Australian households are going into debt faster than any other developed country and putting the economy at risk. The bank warned of “a good deal of distress to the economy” when the housing cycle turns and said the growth in credit is “clearly faster than is sustainable”.
Australia's annual growth in household borrowing was 19.6 per cent in 2002-2003, compared with 10.3 per cent in the US, 9.4 per cent in the UK and 8 per cent in Canada. Since 1995, only Spain, at 15.7 per cent, has surpassed Australia (14.2 per cent) in household debt growth.
Separate figures also released on August 11, by the Bureau of Statistics, showed that lending to residential property investors rose 8.4 per cent in June 2003 to a record $6.88 billion, up more than 37 per cent than in June 2002. Borrowing by owner-occupiers also rose in June 2003, by 6.7 per cent, which is 21 per cent for the year.