Australian households have battened down the hatches and boosted savings as COVID-19 has ripped through the national economy but it might not be enough to keep everyone afloat, the central bank warns.
The Reserve Bank of Australia's half-yearly financial stability review released on Friday shows many households suffered income falls due to job losses, reduced working hours and lower wages.
Most of the impact was offset as people sought loan repayment deferrals and the federal government provided cash support though programs like JobKeeper and JobSeeker, as well as allowing access to superannuation.
As at July, about 30 per cent of the working-age population were benefiting from JobKeeper, JobSeeker or similar payments, and around three million requests for early access to super funds were ticked off.
A big portion of the super money was used to pay down debt or build home loan deposits and overall household savings rates for renters, mortgagors and outright homeowners "greatly" increased.
The RBA said it was uncertain whether households that have strengthened their financial position by saving would soon spend that money.
"However fiscal measures to support low and middle income households, including income tax cuts, will help to support households' financial position and spending going forward."
Still, with unemployment set to peak around eight per cent in the December quarter - according to this week's federal budget - households are not yet out of strife.
"With further increases in unemployment expected, more households will experience financial stress," the RBA warned.
At end-August, mortgage repayments were deferred on around seven per cent of housing loans, by number, and about 75 per cent of deferred loans had prepayments of less than three months' worth of repayments.
Deferrals began expiring in late September with most due to run out before the end of October, unless borrowers can agree on special arrangements with their banks.
"It is likely the share of loans exiting from deferrals and then beginning to miss payments will increase over coming months," the RBA said.
"Banks have assessed that about 15 per cent of deferred loans are at greatest risk of not being able to resume repayments when the deferral period ends."
The RBA also warned that house prices could fall further, affecting many more Australians.
There was potential for mortgage holders in distress to sell their homes, bank officials said, while Australia's closed borders means weak population growth.
Prime Minister Scott Morrison was asked about the house prices warning.
The federal government is fast-tracking the building of 200,000 homes through its $500 million HomeBuilder scheme.
"There will always be an excess of demand over the supply of housing in this country. Always has been," Mr Morrison said.
"And that's what has fundamentally driven house price values all around the country. And that is still true today. There is still a surplus of demand over supply."
Meanwhile the future of many businesses remains uncertain.
Most have survived through government programs and deferred repayments of loans, the RBA said.
However banks and loan providers are hoping businesses can resume repayments, while the government's JobKeeper employer program is due to expire in March.
"As the downturn persists and the support starts to unwind ... it is likely that business failures will rise," the RBA said.
Despite the scenario, the RBA said the financial system was strong enough to withstand Australia's coronavirus-led recession.
But risks remain, especially if the federal government's optimistic outlook for economic expansion in 2021/22 falls short.
The RBA could lower its key cash interest rate to 0.1 per cent, from the current record low 0.25 per cent, at its next monetary policy meeting in November, local securities market pricing suggests.