Australia faces global financial shock from AI boom collapse, RBA warns

Despite concerns about rising interest rates and falling property prices, the RBA estimated that fewer than 1% of Australian mortgage holders are in negative equity, meaning they owe more on their home than its current market value. The report noted that while some households are experiencing hardship, the overall share in severe financial stress or arrears has remained low, supported by a strong labor market and accumulated savings and equity buffers.

However, the RBA cautioned that recent buyers who took out loans close to the property's value, including those who utilized the government's 5% home guarantee scheme, are more likely to now be in a negative equity position. The report also stated that even a significant 20% property price crash would only push around 5% of mortgages into negative equity, emphasizing that negative equity alone is insufficient to trigger defaults for most borrowers who can still service their loans.

Beyond the AI boom, the RBA identified ongoing conflicts in the Middle East and Ukraine, coupled with intensifying strategic competition among major powers, as contributing factors to global financial instability. The central bank also pointed to the rising risk of cyber attacks, potentially amplified by AI, and a sudden sell-off in global bond markets as significant external threats to Australia's financial stability.