Finance Property RBA boss not concerned about house prices

RBA boss not concerned about house prices

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Reserve Bank governor Glenn Stevens is not concerned about the current surge in housing prices, but has urged borrowers not to over-extend themselves.

Recent rises in house prices are a reversal of earlier weaknesses, Mr Stevens said on Tuesday.

“My own view thus far has been that some rise in housing prices is part of the normal cyclical dynamic,” he told a Citi Group Investment Conference in Sydney.

“Hence, it has been a little too early to signal great concern.”

While credit growth was quite low at the moment, borrowing by investors in the Sydney housing market was becoming “noticeably stronger”, Mr Stevens said.

“It is very important that strong lending standards remain in place, and that decisions be based on sensible assumptions about future returns.

“That’s what we need if we are to experience a long and sustainable expansion in housing investment that houses our growing population at **acceptable cost**, and pays reasonable returns on the capital deployed.”

ANZ chief executive Mike Smith, who on Tuesday unveiled another record profit for his bank, also said there was currently no bubble in the housing market.

“What we are seeing is an increasing price trend but it’s not materially out of whack and I’m certainly not too worried at the moment,” he said.

Commonwealth Bank senior economist Michael Workman said credit growth was currently mild at between four and five per cent, but there have been concerns about a housing bubble.

“Mainly because of the discussion around house price rises over the past few years as the RBA cut the cash rate to its current record low of 2.5 per cent,” Mr Workman said.

ANZ head of Australian economics Justin Fabo said the RBA’s positive attitude to rising prices could change in the future.

“The bank won’t tolerate a period of very rapid house price appreciation, particularly if it is absent a strong and sustained pick-up in housing construction activity,” he said.

Mr Stevens also noted there had been improved consumer and business sentiment in Australia recently.

“It is not yet clear to what extent, or when, these more favourable trends in confidence will translate into intentions to spend, invest and employ,” he said.

“The pace of new dwelling construction is starting to respond to higher prices in the established property market, as we need it to.

“But at this stage, the available information suggests that broader investment intentions in the business community remain subdued.

“It may be a while yet before we can expect to see conclusive evidence of a change here.”