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Australia Mulls Measures to Cool Property Market
The recent surge in Australia's home prices and rising evidence of deterioration in the quality of mortgage lending may force the hand of the country's banking regulator before the end of the year, with measures to cool the property market.
BY
Realty Plus
Published - Monday, 22 Mar, 2021
BY
Realty Plus
Published - Monday, 22 Mar, 2021
The recent surge in Australia's home prices and rising evidence of deterioration in the quality of mortgage lending may force the hand of the country's banking regulator before the end of the year, with measures to cool the property market.
House prices in Australia have returned to record levels, buoyed by ultralow interest rates, a big jump in household savings, and the Reserve Bank of Australia's insistence that interest rates aren't likely to be nudged higher before 2024 "at the earliest."
Economists warn that in the absence of a rise in interest rates, the use of so-called macroprudential tools will be needed to prevent an overheating of the property market that could drive up household debt, and push new buyers to the sidelines.
The Australian Prudential Regulation Authority, the country's banking regulator, has in the past successfully deployed macro prudential tools after house prices jumped on low interest rates following the global financial crisis.
Reserve Bank of Australia Gov. Philip Lowe has said he is carefully watching the rise in house prices, but added that it isn't the job of the central bank to target the property market. Nevertheless, he will welcome moves to cool house prices if they become overheated. Despite a pummeling of the economy in the first half of 2020 due to the Covid-19 pandemic, house prices have remained resilient.
Economists initially feared big falls in residential house prices as unemployment rose and borders were closed to immigration. But the property market has bounced as a wave of fiscal stimulus has ended up in savings accounts. House prices in Sydney, Australia's largest regional property market, achieved record peaks this month. The recovery in Sydney follows a 15.3% decline from July 2017 to May 2019.
The share of new home loans with a high debt-to-income ratio rose to 59.3% in the fourth quarter from 57.7% in the third quarter, while loans with high loan to valuation ratios spiked to 42.0% from 39.9%, the APRA data showed. Interest-only home loans picked up to a 19.3% share in the fourth quarter from 18.7% in the third quarter, the highest ratio since mid-2019.
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