The level of concern about the household sector is clear-cut in the minutes of the Reserve Bank’s 3 July Monetary Policy meeting. So much so, a special paper on the level of household debt was prepared for the meeting.

Committee members observed that “compared with the average of the preceding 20 years, growth in household income had remained subdued over the most recent couple of years, with growth in all components of income remaining below average.”

While growth in labour income had increased to its highest level since 2012 and growth in average hourly wages also increased, wages growth remained low. This reflects a larger workforce, driven by immigration and while average hourly wages have increased, the growth of part-time employment, at a faster rate than full time, is keeping overall wages growth in check. Consequently, individual household income from the main source, labour, remains below trend consistent with spare capacity in the labour market.

“Household debt increased by more than household income over the preceding three decades in many countries, but particularly so in Australia.” What distinguishes the Australian housing market from other countries is the high percentage of private ownership. Obviously, the debt is therefore higher in the household sector, with corporate ownership of rental properties proportionately lower. The larger percentage of the population living in detached housing also results in higher borrowing per household.

While data indicates most “Australian household debt is owed by higher-income and middle-aged people who tend to have more stable employment and often larger savings buffers”, a “material share of household debt is held by lower-income households, which generally have higher debt relative to their income.” In addition, most household assets comprise housing and superannuation, and both are illiquid.

High levels of debt expose households to economic shocks, which when they occur impact consumption and can affect economic outcomes. Therefore, household balance sheets continue to warrant close and careful monitoring. I have been singing off this music sheet for over a year now.

Even without an economic shock, the decline in house prices is dampening the positive wealth effect of previous years. This “feel good” mind set underpinned consumption and justified raiding the piggy bank to an extent the national savings ratio slumped to 2.1% in the March quarter, a level not seen since pre-GFC days of 2006. Household balance sheets are one concern, so also is household consumption given its influence on GDP growth.

Out-of-cycle rate increases will begin to infiltrate the banking sector and the four majors will be the last to move. Net interest margins are under pressure as the cost of funds increases driven by upward moves in international wholesale interest rates. It is unlikely deposit rates will be increased, so the S&P/ASX 200 dividend yield of 4.1% is supportive of the market, at least in the near term.

Belatedly, APRA has come out in support of the banks reeling from the Hayne Royal Commission fire storm. Banks are in the business of taking risks and customers must realise their decisions are not risk-free. The principle of caveat emptor, or let the buyer beware, applies. There is little doubt the culture and behaviour of banks has not been exemplary, but it is also important to recognise the role banks play in the financial system and the economy. It seems to me the slide in bank share prices has run its course, which is also supportive of the market.