Debt fears hit housing

RBA worried market may be overheating

THE Reserve Bank is losing confidence that Australia’s hot property market is cooling fast enough, particularly in Melbourne and Sydney, an economist says.

Minutes from the central bank’s August meeting – at which it decided to leave the cash rate unchanged at 1.5 per cent – reveal the board remains concerned about house price growth and the level of housing debt.

Released yesterday, they note that while there are some signs conditions in the Mel- bourne and Sydney property markets have cooled, growth in these two cities remain strong, while prices in Perth have fallen and apartment price growth in Brisbane has been weak.

“Borrowers investing in residential property had been facing higher interest rates and growth in credit to investors had eased, but overall housing credit growth had continued to outpace the relatively slow growth in household incomes,” the minutes said.

The RBA board said there was a need to balance the risks associated with high household debt in a low-inflation environment.

ANZ head of Australian economics David Plank noted that in the minutes from the previous month, the RBA said it was too early to tell whether regulatory measures in the housing market had had their full effect.

That comment was absent from the latest minutes, Mr Plank said.

“The bank seems less confident that house price growth is moderating to a satisfactory degree,” he said.

The Australian Prudential Regulation Authority this year told lenders to limit growth in lending to investors to 10 per cent a year and cap growth in higher risk interest-only loans at 30 per cent of new mortgages.

A skilled labour shortage and its knock-on effects were another factor that informed the RBA’s decision to keep the cash rate on hold at 1.5 per cent.

“Information from liaison indicated that some employers were finding it harder to attract workers with particular skills,” the minutes read.

“If this were to broaden, wage growth could increase more quickly than forecast, which would see inflationary pressures also emerge more quickly.”

Underlying inflation was tipped to be close to 2 per cent in the second half of this year and edge higher over the 2018 and 2019.

The board also noted the Australian dollar had risen to levels not seen since 2015 and if it continued to climb, that could dampen growth.

“Inflation was still expected to increase gradually as the economy strengthened,” the minutes said.

“However, a further appreciation of the exchange rate would be expected to result in a slower pick-up in inflation and economic activity than currently forecast.”

The Australian dollar rose to US78.77¢ yesterday.