Reserve Bank keeps housing market in its sights

by Julia Corderoy22 Oct 2014
The heated housing market has buoyed consumer consumption; however, the Reserve Bank has hinted that it may be time to tighten the rein on the Australian property market.

In the minutes of the October monetary policy board meeting, the Reserve Bank noted that consumption had continued to grow into the September quarter – likely supported by the ongoing strength in the housing market.

This same view is reflected in the latest ANZ-Roy Morgan Consumer Confidence Survey, which saw consumer confidence remain steady despite domestic and global volatility. 

 “Consumer confidence remains broadly stable with house price gains likely providing some offset to concerns related to recent sharemarket losses and volatility on global financial markets,” said Warren Hogan, ANZ chief economist. 

However, the central bank noted that while continued accommodative monetary policy is expected to support growth, it is favouring the housing market – especially the investor market.

“To date, this had been most apparent in the housing market, where dwelling investment had picked up and was expected to remain strong following the rapid rise in housing prices and high levels of approvals. Credit growth had remained moderate overall, but in recent months there had been a further pick-up in lending to investors in housing,” the bank said.

But while the exchange rate remains high, the Reserve Bank is reluctant to start increasing the cash rate to curb property investment and balance the economy.  

“Despite the easing in financial conditions associated with the depreciation of the Australian dollar, the exchange rate remained high by historical standards – particularly given recent declines in key commodity prices – and was offering less assistance than would normally be expected in achieving balanced growth in the economy,” the bank said.

As such, the central bank suggested reigning in the heated housing market through other means, expressing concern over the low-rate environment and lending standards.

“Members noted that the current setting of monetary policy was accommodative, with lending rates remaining very low and continuing to edge lower over recent months as competition to lend had increased. In this context, members discussed the importance of lenders maintaining strong lending standards and the ongoing dialogue between the Bank and APRA on the matter,” the minutes stated.