RBA Flags AI Collapse Risk as Under 1% of Mortgages Sit in Negative Equity

The Reserve Bank of Australia has estimated that fewer than one in 100 mortgage borrowers owe more on their home than the property is currently worth — a figure the central bank used this week to argue that Australian households can absorb further rate rises and further house-price declines.

At the same time, the RBA's biannual Financial Stability Review warned that this domestic resilience would offer little protection if the global AI investment boom collapses. The review said the country "would not be immune to a sudden collapse" of the cycle, and judged that "threats to global financial stability continue to mount."

What is the RBA's verdict on households?

The bank rates them as "well placed" to weather what it calls the twin storm of rising interest rates and plunging property prices. The under-1% negative-equity figure sits at the heart of that assessment.

That cushion matters. Any further squeeze on disposable income — through higher repayments, weaker wages or a renewed rise in unemployment — would land on a household sector with less spare equity than it held before the recent tightening cycle began.

Why is AI the standout risk?

The review singles out the AI investment cycle as the most plausible external channel through which a foreign shock could reach the Australian financial system. A sharp repricing of AI-linked equities, or a credit event among the largest backers of that build-out, would transmit through Australian asset managers, listed corporates and any funds with offshore exposure.

The warning is unusually direct for an institution that rarely uses the word "collapse" in its stability reviews.

The bank did not label the current rally a bubble. By flagging the risk at all, it has put AI-driven valuations squarely on the global financial-stability agenda.

How does the RBA read the wider picture?

The review groups threats into three buckets: household credit, the banking sector and global spillovers. The first two are judged manageable, given the negative-equity reading and the capital build at the major lenders over recent years. The third is described openly as mounting — a notable shift in tone from the more sanguine earlier reviews.

So what?

The structural message for investors is that the next shock to the Australian household may not start in Australia. Any portfolio with material exposure to global AI-related equity volatility — whether through local asset managers, listed Australian companies with offshore tech exposure or unhedged foreign holdings — should now treat that exposure as a first-order Australian risk, not a tail scenario. The next RBA board decision on the cash rate will be the first market test of whether the optimistic household reading in this review survives contact with the next batch of inflation and labour-market data.