BusinessDay

RBA governor warns Australians of household debt risk

THE Reserve Bank of Australia has warned homeowners to be wary of taking on too much debt to buy a property, especially in light of a sharp rise in Sydney prices.

People need to keep in mind that prices don’t just rise, they can fall.

RBA governor Glenn Stevens said yesterday that while current levels of household debt weren’t ‘‘disastrous’’, he would be worried about an acceleration in credit growth to homebuyers.

‘‘It’s [household debt] pretty high now and we’d, surely, be asking for trouble if we saw a big step up from where we are,’’ he told politicians of the House Economics Committee Sydney.

‘‘People need to keep in mind that prices don’t just rise, they can fall, they have fallen and we need to be careful that we don’t take on too much leverage,’’ he said.

Glenn Stevens

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Stevens said that while housing affordability had improved in recent years because of interest rate cuts and a soft housing market, buying a home had become less affordable recently due to a runup in prices, especially in Sydney.

He also said there was strong demand from foreign investors for houses in Australia’s major cities, but the impact on house prices seemed to have been overstated.

‘‘In particular parts of our cities, the role of foreign investors is quite prominent indeed, but I suspect rather less prominent than some of the headlines might suggest,’’ he said.

Stevens also indicated that he was confident unemployment will start to fall this year.

The unemployment rate in January hit a 10-year high of six per cent, and most forecasters, including the RBA, say it will go higher.

Stevens said he expected unemployment to peak later this year.

‘‘Unemployment will rise further; I would hope not too much further,’’ he said.

‘‘I’d say the unemployment rate will edge up a little bit further yet before we see it peak some time this year.’’

In recent months, new data has shown that economic growth has been strengthening but employment growth has still been quite weak.

Stevens was asked how long it takes the labour market to respond to changes in economic activity.

‘‘Output leads employment. I’d say that would be true in the future and I’d say, probably, one to two quarters,’’ he said.

Stevens reaffirmed the RBA’s forecasts that economic growth will soon pick up and get above three per cent.

He also played December quarter inflation.

The consumer price index (CPI), a key measure of inflation, rose 2.7 per cent in the year to December.

‘‘We’ve had a little bit faster flow-through of the effects of the exchange rate,’’ the Reserve Bank of Australia’s governor told the committee. down spike the in