vulnerabilities that could result in substantial negative impacts on the economy, or economic vulnerabilities that could result in risks to financial stability. we work with other regulators to identify signs of increasing risks in the financial system and measures to address these risks. where appropriate, we provide advice to government on the potential implications for financial stability of policies. and we talk about the risks we are seeing to help inform other regulators, participants in the financial system, businesses and the general public of the potential risks that might have an impact on the economy. this last action – communicating the risks – is the key purpose of our six - monthly financial stability review ( the review ). while any individual financial institution, business or household might think the risks they are taking on are appropriate, they may not be adequately taking into account the risks that are arising at a systemic level from everyone's actions. the review attempts to bring this system - wide view. our most recent review was published in october last year and we are currently in the process of drafting the next one, which will come out in april. so, for the remainder of my talk, i am going to cover some of the key risks that we see at the moment. given the audience, i am going to focus on risks related to residential and commercial property. first, i will give an update on recent developments in these areas. then i will talk a little about recent concerns around tighter lending standards. and i will finish up with a few observations on the property market in western australia. household debt six months ago in the review, we noted that global economic and financial conditions were generally positive and that the australian economy was improving. at the same time, housing prices were declining. in this context, we highlighted a number of vulnerabilities – issues that, were a shock to occur or economic conditions take a turn for the worse, could manifest in a threat to financial stability. at that time, we highlighted two domestic vulnerabilities that are relevant to my talk today – the level of household debt, and the slowdown in housing and credit markets. six months on, these vulnerabilities remain. if anything, they are a little more heightened. the bank has highlighted the issue of household debt as a potential threat to financial stability many times over the past few years. although it does not capture all the important information about household indebtedness, the ratio of household debt to disposable income is one summary indicator. this

ratio is historically high ( graph 1 ). the household debt - to - income ratio rose from around 70 per cent at the beginning of the 1990s to around 160 per cent at the time of the gfc. the ratio steadied for a few years before starting to rise again around 2013 ( around the same time that housing price growth began to accelerate ) and is now around 190 per cent. https : / / www. rba. gov. au / speeches / 2019 / sp - ag - 2019 - 03 - 20. html 2 / 14 3 / 20 / 2019 property, debt and financial stability | speeches | rba graph 1 i have talked previously about some of the reasons why the debt - to - income ratio has risen so much over the past few decades. [ 3 ] in particular, a structural decline in the level of nominal interest rates and deregulation have eased credit constraints and increased loan serviceability. and as households have been able to borrow more, they have been able to pay more for housing. one important driver of high household debt in australia is, therefore, housing. there is very little debt related to nonhousing loans such as credit cards or car loans. just as housing costs have been an important driver of household debt, so has the ability to borrow more influenced the price of housing. over the past decade, housing prices in many parts of australia have risen but the rise has been particularly sharp in sydney and melbourne, which account for around 40 per cent of the housing stock ( graph 2 ). more recently, housing prices have fallen. since the peak in mid 2017, housing prices australia - wide have declined by around 7 per cent. the falls in sydney and melbourne have been larger. the question we are asking ourselves is, given the high levels of debt and falling housing prices, are there any significant implications for financial stability? https : / / www. rba. gov. au / speeches / 2019 / sp - ag - 2019 - 03 - 20. html 3 / 14 3 / 20 / 2019 property, debt and financial stability | speeches | rba graph 2 the answer would be no at this stage – the impacts are not large enough to result in widespread problems in the financial sector. this is not to downplay the financial stress that some households are experiencing. but most of the debt remains well secured against property, even with the decline in housing prices. total repayments as a share of income remain steady and a large number of indebted households