Rapid house price rises are being touted as a thing of the past by the Reserve Bank because of tougher lending standards.
The RBA’s head of financial stability Luci Ellis says there will be fewer buyers in the housing market, which means less upward pressure on prices.
“Housing prices are therefore going to be cycling around a slower trend than they did in the past,” she said.
“There will be more periods where prices are falling a little.”
Since the GFC, the RBA and the Australian Prudential Regulation Authority have urged to put an emphasis on the borrower’s ability to meet everyday costs as well as their loan repayments.
“After all, it doesn’t seem reasonable to expect people to have a poverty-level lifestyle to pay off a million-dollar home,” Dr Ellis told the Citibank Residential Housing Conference in Sydney on Thursday.
“Australian household finances are not looking that stretched at the moment, and we’d like to see it stay that way.”
Dr Ellis said the tougher loan requirements are likely to be more binding on first home buyers than existing homeowners and investors.
“So it’s no surprise that as interest rates have fallen, it’s the trade-up buyers and investors whose demand has increased,” she said.
In deciding to approve a loan or not, lenders are also more likely to calculate if the borrower can still make repayments if interest rates go up.
“You do nobody a favour by trying to solve an affordability issue by making it easier for people to borrow more than they can reasonably service,” Dr Ellis said.
CommSec chief economist Craig James is encouraged that it doesn’t look like there will be any shocks for the housing sector.
“All in all it was clear that the Reserve Bank believes the housing sector is in good shape, and more importantly household finances are still looking healthy,” he said.
“It was comforting to see the detailed analysis and rigour with which central bank policymakers are assessing the dynamic shifts in the housing sector.