Housing risks stay RBA’s hand

by Miklos Bolza22 Mar 2017
The Reserve Bank of Australia (RBA) has highlighted growing risks in the Australian property market as a key reason for keeping the cash rate at 1.5% this month.

In the Minutes of the Monetary Policy Meeting of the Reserve Bank Board, the RBA discussed “a build-up of risks associated with the housing market”.

“In some markets, conditions had been strong and prices were rising briskly, although in other markets prices were declining. In the eastern capital cities, a considerable additional supply of apartments was scheduled to come on stream over the next few years.”

The RBA also mentioned the increase in residential lending by investors and growth in levels of household debt.

Despite a drop in building approvals in recent months, the board suggested that the amount of building work in the pipeline was high enough to contribute to growth in the coming quarters.

A strong housing market in Sydney and Melbourne with growth in both housing prices and clearance rates was accompanied by bolstered loan approvals and credit growth for investors in New South Wales and Victoria.

This was balanced by a decline in housing prices in Perth and a decrease in apartment values in Brisbane, the RBA said.

Interest rates for some investor and interest-only housing loans had increased slightly in the months prior to the board meeting, they added.

“Given all of these considerations, the board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.”

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