Half a dozen leading indicators monitored by Moody's Investors Service are either favourable or neutral for bank asset quality in Australia, according to an assessment published yesterday by the ratings agency.Leading indicators tracked by Moody's include house price growth, consumer confidence, mortgage affordability, the US$/A$ exchange rate (which affects tourism demand), the commodity price index and building permits.Echoing a common theme, Moody's said: "Key challenges facing the Australian economy are its economic transition in the coming 12 to 18 months, as the investment boom in the resources sector moderates and the decline in the terms of trade weighs on national income." That transition may be bumpy, in Moody's view, with the rise in consumer confidence being viewed as "not particularly strong, as concerns over employment conditions during the structural shift in Australia's economy continue to weigh on consumer sentiment."Moody's said consumer confidence "directly captures the ability of households to service their mortgages", but noted "lower interest rates are supporting affordability. The prospect of markedly higher rates over the timeframe of this outlook is low."The agency said: "Rising house prices in selected neighbourhoods - notably in Sydney - are weakening affordability, but not yet to the point where asset quality is a concern.""Additionally, low interest rates are supporting rapid pre-payment of exiting loans, supporting asset quality."