RBA tips scrutiny of booming housing market

The Reserve Bank of Australia is keeping a weather eye on risky lending after house-price growth hit its fastest rate in more than 30 years last month.

After the RBA’s most recent monthly meeting – the first since CoreLogic’s March house price index shot up by 2.8% – governor Philip Lowe said the central bank was “carefully” monitoring risky borrowing.

The RBA left monetary policy unchanged, keeping the cash rate and yield on three-year Australian government bonds at 0.1% and the parameters of its bond-buying program and term funding facility unchanged, according to a report by The Australian. However, Lowe said the RBA would carefully scrutinise lending trends as the market continues to boom.

“Housing markets have strengthened further, with prices rising in most markets,” he said in a statement. “Housing credit growth to owner-occupiers has picked up, with strong demand from first-home buyers. In contrast, investor credit growth remains subdued. Given the environment of rising housing prices and low interest rates, the bank will be monitoring trends in housing borrowing carefully, and it is important that lending standards are maintained.”

Gareth Aird, Commonwealth Bank’s head of Australian economics, said he believed that the central bank was “surprised at just how strong growth in new lending and prices has been so far.”

“Using the word ‘carefully’ is likely to be a subtle acknowledgment that things have heated up a lot more than they expected, and they will keep an eye on it,” Aird told The Australian.

Read more: Soaring property prices drive household wealth to record level

Lowe’s warning follows a statement in March that “lending standards remain sound and it is important they remain so in an environment of rising housing prices and low interest rates.”

While the RBA doesn’t specifically target house prices, Lowe has said that regulators would intervene with macroprudential measures if lenders didn’t maintain healthy standards. The Council of Financial Regulators, which includes the RBA, the Treasury, the Australian Prudential Regulation Authority and the Australian Securities & Investments Commission, said last month that it would “closely monitor developments and consider possible responses should lending standards deteriorate and financial risks increase.”

However, Aird told The Australian that he didn’t think macroprudential regulations would need to be introduced this year.

“Overall, credit growth is still low, lending standards are sound, and interest-only lending is low as a share of overall lending when looking at the past decade,” he said.

Ryan SmithRyan Smith is currently an executive editor at Key Media, where he started as a journalist in 2013. He has since he worked his way up to managing editor and is now an executive editor. He edits content for several B2B publications across the U.S., Canada, Australia, and New Zealand. He also writes feature content for trade publications for the insurance and mortgage industries.
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