THE Reserve Bank of Australia has issued a strong warning that surging house prices won’t last forever and they could fall.
The central banks’ biannual Financial Stability Review, released today, highlights the risky economic environment Australia is in fuelled by the record-low interest rate environment, strong price competition among lenders and pick-up in investor lending.
It warns that the composition of housing and mortgage markets could result in “becoming unbalanced” and lending to investors was out of proportion to the quantity of the share of rental housing stock.
“The main risk from this strong investor activity appears to be that the extra demand may exacerbate the housing price cycle and increase the potential for prices to fall further,’’ the review states.
The composition of housing and mortgage markets could result in “becoming unbalanced”, according to the report. Pic: AP Photo/ Nick Ut Source: AP
“The composition of housing and mortgage markets is becoming unbalanced.
“This has been most evident in the housing market in and its concentration in Sydney and Melbourne.”
Investor housing loan approvals were almost 90 per cent higher in NSW compared to two years ago and were 50 per cent higher for the same period in Victoria.
RBA governor Glenn Stevens said last month the central bank had reached its limit of what it could do with lower interest rates.
In the review the RBA also highlighted that potential first home buyers have been “priced out” of the property market by investors who were earning bigger incomes and had the ability to make higher bids on homes.
Reserve Bank Governor Glenn Stevens says the RBA reached its limit of what it could do with lower interest rates. Photo by Stuart Quinn. Source: News Corp Australia
First home buyers lured into property market with small deposits
But the central bank said property investors in Australia have remained as creditworthy as owner occupiers and lending standards remained tougher now than prior to the Global Financial Crisis.
But they said they were making moves to “promote stronger risk management practices by lenders.
This includes discussing approaches with the Australian Prudential Regulation Authority and members of the Council of Financial Regulators to “reinforce sound lending practices particularly for lending to investors.”
Many Australians have continued to shave down their home loan debt with mortgage buffers — money held in mortgage offset and redraw facilities — rising to about 15 per cent of outstanding balances and borrowers were more than two years ahead of scheduled repayments.
