CBA (ASX:CBA) share price slumps amid RBA concerns of sector vulnerabilities

The Reserve Bank of Australia is keeping a close eye on mortgages and housing prices. Here's why.

The Commonwealth Bank of Australia (ASX: CBA) share price is sliding amid the Reserve Bank of Australia's (RBA) concerns over the housing market.

The Reserve Bank's assistant governor of financial systems, Michele Bullock, spoke of the risks associated with Australia's burgeoning housing loans today.

Additionally, as The Motley Fool Australia reported yesterday, 42% of households are experiencing mortgage stress.

In the midst of the worrying conversation, the CBA share price is slipping alongside those of the other big four banks. Of course, CBA is Australia's largest mortgage lender by volume.

The CBA share price finished today trading for $99.64, 0.7% lower than its previous close.

Meanwhile, the Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price slipped 0.2% and that of National Australia Bank Ltd. (ASX: NAB) fell 0.7%.

The Westpac Banking Corp (ASX: WBC) share price brought up the rear with a 1.1% drop.

Let's take a look at the comments made by the RBA's assistant governor of financial systems today.

CBA share price money laundering asx bank shares represented by large buidling with the word 'bank' on it

Image source: Getty Images

RBA worried about mortgage lending

The CBA share price struggled today.

Meanwhile, the RBA's Michele Bullock commented the financial regulator is worried about increasing mortgage debt.

As the nation economically rebounds from the pandemic, housing prices have increased. This has forced Australians to turn to banks for larger mortgages.

But a dip in house prices could see Australians with more debt than their assets are worth. And banks could be left taking the hit.

Right now, growth in housing credit is running at a rate of around 7% each year. That's expected to increase to 11% early next year. It's being driven by low interest rates and government support for housing construction.

However, around 60% of Australian banks' lending is for housing, as is most of Australians' debt.

A downturn in Australians' financial position and housing prices could, therefore, see banks covering the difference between debt levels and property values.  

This means the risks to banks in the case of a drop in the housing market is increasing. Bullock said:

Over-exuberance in the housing market can amplify these risks in two ways. First, rapid price rises can increase the likelihood that some new borrowers will over-stretch their financial capacity in order to obtain a new loan, making them more likely to reduce their consumption in response to a shock to their incomes. Second, if rapid price rises ultimately prove to be unsustainable they could lead to sharp declines in price and turnover in the future. This in turn could result in reduced spending, both directly as a result of a decline in turnover and through the wealth effect.

Though, Bullock says we're not on the brink of another GFC. The RBA is also keeping an eye on the risks facing banks.

Therefore, the CBA share price is currently protected from such risks.

CBA share price snapshot

The CBA share price has been struggling lately.

It has fallen 0.5% over the last 30 days. However, it is still 18.9% higher than it was at the start of 2021.

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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