Prudent Mortgage Lending Standards Help Ensure Financial Stability”, Address to the Australian Mortgage Conference

Good morning, and thank you to RFi for the opportunity to speak to you today. Property markets and financial stability are both topics that are dear to my heart, and I hope to yours as well. It has been known for generations that boom-bust cycles in asset prices can be harmful to the economy and the people in it. They are especially harmful when fuelled by easy credit. Sadly, that knowledge has not stopped the busts occurring. The source of the threat to financial stability is more often in commercial property or property development than in home mortgages, so I think we need to keep the risks posed by the housing and home mortgage markets in perspective. Still, if something did go badly wrong in the housing market, it would be painful and could damage financial stability. I therefore want to go through some of the reasons why households might default on their mortgages, explain why the US market became so distressed, and show how we can continue to avoid a similar situation. Is housing really the problem? Although this talk is about home mortgages, I want to emphasise that home mortgage markets with prudent lending standards do not generally pose risks to financia