Rising risks in the Australian housing market are behind the Reserve Bank of Australia’s (
RBA’s) decision to leave the official cash rate on hold this month.
In the latest board minutes released yesterday (18 March), the RBA pointed to overall growth in housing credit outpacing growth in household incomes yet again. This suggests that “the risks associated with the housing market and household balance sheets [have] been rising,” the board said.
Although recent regulatory supervisory measures and a reduced reliance on interest-only lending were meant to mitigate these risks, the RBA acknowledged that it would take time to assess the effects of these changes.
They also noted that calibration of the guidance provided by agencies such as the
Australian Prudential Regulation Authority (APRA) was “not precise or straightforward”.
“Developments needed to be kept under review and, depending on how the system responds to the various measures, members noted that the Council of Financial Regulators would consider further measures if needed.”
Growth in housing credit to investors had grown in the six months prior to the Board’s cash rate decision on 4 April while growth in housing credit to owner-occupiers had moderated.
“Members observed that the growth of housing credit to investors had initially moderated in response to the announcement by [APRA] of a [10%] benchmark for investor credit growth in late 2014. In addition, the share of lending with high loan-to-valuation ratios had fallen.
“However, growth in investor credit had increased steadily since early 2016, despite the fact that banks had tightened lending standards and, on average, increased the margin between interest rates on investor housing loans and those on loans to owner-occupiers.”
While low interest rates and improved lending standards have improved serviceability of mortgages, “some households with home loans appeared to have little or no buffer of excess mortgage repayments and could be vulnerable if household income were lower than expected,” the board members noted.
“This observation emphasised the importance of realistic assessments of household expenses and prudent lending standards for mitigating risks to both financial stability and macroeconomic outcomes.”
The RBA also noted the efforts that banks had made to curtail lending to certain segments of the housing market, especially in areas such as Brisbane where the risks of apartment oversupply where considerable. This additional supply could place downward pressure on growth in apartment prices, the board said.
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