The Reserve Bank keeps telling us everything is OK, that Australia is still on the narrow path to conquering inflation without a recession and that most home owners are coping with higher interest rates.

But the question that needs to be asked is OK for whom?

It’s true Australia isn’t in a technical recession — two consecutive quarters of a shrinking economy — but we’ve only narrowly avoided one through record population growth.

On average, individually, Australians have seen their economic output and living standards slip every quarter for the past year — that’s back-to-back per capita recessions.

Likewise, the RBA says most home owners have coped reasonably well with higher interest rates.

But the bank’s financial stability department, which generally conducts this analysis, isn’t primarily concerned with how much financial stress a household is under and what it’s cutting back to scrape by.

As explicit in its name, the financial stability section of the RBA is focused on whether Australia’s banks, especially the big four, risk taking a hit big enough to threaten their survival.

With this front of mind, it’s worth taking a look at the RBA’s latest research on home loan arrears.

Long-term mortgage arrears nearing recent highs

Ignoring the sharp peak at the beginning of COVID, before banks provided emergency repayment holidays for those affected by the lock-downs and border shutdown, the percentage of borrowers at least 90 days behind in their repayments is back around pre-pandemic levels.

That sounds benign but, as you can see, those pre-pandemic levels were actually above the arrears peak seen the last time interest rates rose, as Australia’s economy recovered from the global financial crisis.

This is another reminder that Australia’s economy was very weak — bordering on recession — before the pandemic started.

However, no-one is panicking with a 90-day arrears rate below 1 per cent even if, as expected, it does keep ticking higher from here.

But let’s step back and think of what the arrears rate is measuring.

It’s borrowers who are already 90 days behind on their repayments.

It doesn’t include borrowers who have skipped meals, left other debts unpaid, or sold assets to keep up with their home loan repayments.

It also excludes those who have sold their house “voluntarily” because they realised they simply couldn’t keep up with rising mortgage repayments and inflation.

At a recent property panel discussion, S&P Global’s Erin Kitson — who is involved in putting credit ratings on residential mortgage-backed securities (RMBS) — said she was not expecting a major increase in arrears from current levels, largely because most people in trouble have been able to bail out before they get pushed.

“I think in this particular cycle, what has helped mortgage arrears has been the property price appreciation,” she said.

“The other way that our property price appreciation helps our mortgage arrears is by helping a borrower’s refinancing prospects.

“So refinancing is a really common way for a borrower to self-manage their way out of financial pressure and move on to a lower mortgage rate, and lenders look more favourably at borrowers with more modest loan-to-value ratios.”

It’s perhaps no surprise then that the cohort of borrowers who took out their loans in 2022 — at the peak of the post-COVID property boom and at the beginning of the RBA’s rate hike cycle — are most in arrears.

While facing very similar cost of living and rate rise pressures to those who borrowed in earlier years, they don’t have the same degree of home value appreciation to fall back on to either refinance or bail-out and sell.

(Remember, even if your home sells for the same price you bought it for, you’ll book a big loss because of stamp duty, agent fees, moving costs, etc.)

Home owners bailing out

While it’s impossible to find an exact number, there is strong evidence that a significant cohort of struggling borrowers have bailed out and sold.

CoreLogic tracks data on how long recently sold properties had been held.

Quick resales (those within a few years of purchase) were at record highs earlier this year.

At 16 per cent, the proportion of homes being resold within three years of their last purchase is at the highest level in data that goes back a decade, and a full 2 percentage points above the previous record.