The Reserve Bank of Australia said an upswing in property prices fueled by record-low interest rates can’t go on forever and lenders should avoid relaxing standards to boost profits.
“While rising housing prices and greater household borrowing are expected results from the monetary easing that has taken place and are helping to support residential building activity, they also have the potential to encourage speculative activity,” the RBA said in its semiannual financial stability review in Sydney. “It is important for both investors and owner-occupiers to understand that a cyclical upswing in housing prices when interest rates are low cannot continue indefinitely.”
The central bank lowered borrowing costs by 2.25 percentage points in an almost two-year easing cycle to a record-low 2.5 percent in August last year, seeking to boost industries like construction as mining investment ebbs. The reductions have fueled the property market, with prices in Sydney, the nation’s biggest city, jumping 14.1 percent in the year through Feb. 28.
The RBA noted today that the share of households favoring real estate as the best use of their savings has risen to a level approaching that of the early 2000s property market boom.