- home owners ), in contrast, have seen a fall in the proportion with debt ( graph 5 ). another factor that has contributed to the resilience of household finances is that, by and large, the debt has not been used to increase consumption. apart from some brief periods, household consumption has not been unusually elevated during this period of rising debt. rather, the debt has mainly been used to acquire assets. perhaps the best, and most direct, indicator of households ’ capacity to support the increase in debt is the arrears rates on loans. this remains very low in australia. the current arrears rate is around 0. 7 per cent. this is one of the lowest rates among developed economies ( graph 6 ). other data also suggest that households ’ aggregate debt - servicing capacity is quite strong : in recent years more than half of owner - occupiers have been ahead of schedule on the repayments on the loan they took out to buy their property. within this relatively benign aggregate figure, pockets of stress have emerged from time to time. we saw this clearly in the south - western suburbs of sydney following the sharp run - up in sydney house prices over 2002 and 2003. more recently there are some signs of increased housing stress in south - east queensland and western australia, again following sharp rises in house prices in these areas. another segment of the market that will bear close watching is first - home owners. they have accounted for an unusually high proportion of housing purchases over the past couple of years – around 40 per cent. this has reflected the incentives created by various first - home owner concessions. most of these purchases have been funded by floating rate mortgages, and the average loan to valuation ratio is relatively high, at around 90 per cent. clearly, this group will be very sensitive to changes in interest rates. in summary, if we look at the way the increase in household debt has been distributed, what households have done with the money, and the arrears rates on loans, it is reasonable to conclude that the household sector has the capacity to support the current level of debt. having said that, the higher the level of debt the more vulnerable households are to shocks that might affect the economy. we at the reserve bank therefore welcome the fact that the household debt ratio has flattened out in recent years and, as glenn stevens remarked last week, there would be benefits in that stability continuing. foreign debt let me now turn to the question of australia ’ s foreign debt.

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