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RBA puts housing market on notice as sales continue to set records

Business

The Reserve Bank is not yet nervous about booming real estate prices but confirmed it was watching the market closely as one of the nation’s leading real estate agents boasted of record sales transactions of $8.7 billion in Australia and New Zealand in March.

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The central bank, which has responsibility for monetary policy, has stopped short of issuing any warning because banks and households were in a strong position.

In its Fiscal Stability Review, the RBA said asset prices globally had been rising and were at high levels that were underpinned by low interest rates.

“Many asset prices including housing in Australia and other countries have been rising and/or are high,” it said.

“This is a consequence of very low interest rates and expectations of a strong recovery in the economy and income that assets earn. Rising asset prices are helping the economic recovery and reducing the risk that falling prices would result in losses on loans financing those assets.

“However, risks from rising asset prices and debt could build, particularly if lending standards are weakened.

“Persistent increases in asset prices could lead to expectations rises will continue and so increase risk-taking and borrowing, especially given low interest rates.

“This could push asset prices above their fundamental values which could lead to a correction in asset prices, which if borrowers’ income fell could expose lenders to large losses on higher debt.’’

“Banks in Australia do face some challenges in rising non-performing loans as a result of the economic downturn and refinancing their funding from the term funding facility in three years’ time, but both of these seem very manageable.”

There have been suggestions that banking regulators could move in to tighten lending standards on banks if risks in the housing market grew. That could potentially have a flow-on effect of restricting loans and dampening the housing market.

AMP Capital chief economist Shane Oliver said the Financial Stability Review reiterated that the pick-up in Australian house price growth was being watched closely by regulatory authorities but so far it did not appear too concerned because there had not been a significant increase in the growth of debt and lending standards remained robust.

Ray White Real Estate’s Dan White said his company had been involved in 19,000 transactions for families and businesses in March representing $8.74 billion in transaction value. That was up “a staggering 92 per cent year on year’’.

“Record results were recorded in every market, including in Western Australia which saw $286 million in sales, beating our previous record set in 2007. Across Australia, we recorded $6.4 billion in total unconditional sales, up 90 per cent on the prior March. In New Zealand, we transacted $2.2 billion of property, up 95 per cent.

He said buyer activity strengthened during March and auction clearance rates consistently held above 80 per cent, and agents reported strong private treaty sales with limited discounting.

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