Housing market warrants “careful monitoring”: RBA

The minutes from this month’s RBA board meeting have acknowledged a number of risks in the housing and finance markets

Housing market warrants “careful monitoring”: RBA



The Reserve Bank of Australia (RBA) has put the spotlight on movements in Australia’s housing market, noting that “careful monitoring” is required.

In the Minutes of the Monetary Policy Meeting of the Reserve Bank Board released yesterday (16 May), the RBA acknowledged that varying conditions in the national housing market and excessive growth in housing credit were some of the considerations made when leaving the cash rate at 1.5% earlier this month.

“Conditions in established housing markets in Sydney and Melbourne remained robust, but housing prices had been falling in Perth. The additional supply of apartments scheduled to be completed over the next couple of years in the eastern capital cities was expected to put some downward pressure on growth in apartment prices and on rents, particularly in Brisbane.”

Increased levels of residential construction were expected to support dwelling investment over the short-term, the RBA board said. However, falling levels of building approvals suggest the pipeline of new construction will be worked off in the coming quarters.

“Members noted that changes in the rate of home-building lag changes in population growth and that this had affected housing prices in some markets in the preceding few years.

“Growth in housing prices had remained brisk in Sydney and Melbourne, where population growth had been relatively strong, but had been weak in Perth, where population growth had fallen significantly following the end of the mining investment boom.”

With housing credit still growing at a faster pace than household incomes, this posed further risks in terms of household balance sheets, the RBA said.

“Recently announced supervisory measures were designed to help mitigate these risks by reinforcing prudent lending standards and ensuring that loan serviceability was appropriate for current financial and housing market conditions. However, it would take some time to assess the full effects of recent increases in mortgage rates and the additional supervisory focus.”

After a period of growth in investor housing credit, levels steadied in early 2017, the RBA board noted, consistent in a decline of loan approvals to investors.

“Household credit overall had grown at an annualised rate of 6% over the six months to March. Variable housing interest rates had increased since late 2016, particularly for investors and interest-only lending.

“As a result, the average estimated interest rate on major banks' outstanding housing lending had increased slightly, while the average cost of funding was estimated to have been little changed.”

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