The economic backdrop became less supportive during August. Stronger-than-expected inflation increased expectations that interest rates may need to rise further, while National housing prices fell in August, marking the fifth consecutive monthly decline and leaving values approximately 4.6% below their peak. While softer housing prices warrant close attention, it is a common misconception that falling house prices automatically result in losses for RMBS investors. In reality, bondholders benefit from multiple layers of protection. Borrowers typically retain equity in their properties, many loans are supported by mortgage insurance, and securitisation structures include excess spread and subordinated capital that absorb losses before bondholders are affected. These structural protections provide a significant buffer against housing market weakness and have historically helped Australian RMBS remain resilient through previous periods of house price declines.
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