RBA Warns Housing Sector Unbalanced Risk

The Reserve Bank of Australia (RBA) on Wednesday warned of risks associated with the booming property market, adding that it may take measures to tighten bank lending to cool the sector.

In its twice-annual Financial Stability Review, the central bank noted that low interest rates, coupled with strong price competition among lenders, have fueled a “strong pick-up in growth in lending for investor housing.”

“As a result, the composition of housing and mortgage markets is becoming unbalanced, with new lending to investors being out of proportion to rental housing’s share of the housing stock,” the RBA said in the review.

While it recognized that mortgage lending standards are higher than in the years leading up to the global financial crisis, and property investors remain broadly credit worthy, there remains a risk of further rises in the housing market resulting in a potential bubble.

“A broader risk remains that additional speculative demand can amplify the property price cycle and increase the potential for prices to fall later, with associated effects on household wealth and spending,” it said.

The RBA is looking into “additional steps that might be taken to reinforce sound lending practices, particularly for lending to investors,” it added.

Australia housing prices jumped an annual 16 percent in Sydney and 12 percent in Melbourne, partly fueled by record low interest rates. Borrowing costs have been at 2.5 percent since August last year and policymakers have been reluctant to ease further in spite of a softening economy.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza