Surging house prices could see a return to regulator screw tightening

The renewed surge in house prices of late is welcome news for some but could see a return to some more macroprudential tightening.

Melbourne’s property prices jumped 2.2 per cent in November, with similar numbers in Sydney.

The surge in prices really began the moment the Coalition won the federal election and have been helped along by record-low interest rates and the relaxing of APRA’s 7 per cent mortgage rate serviceability test.

“If the housing market continues to gather pace, leading to a rebound in credit growth to levels that causes the Reserve Bank to worry about financial stability, then expect a new tightening of the screws from bank regulators,” AMP Capital’s Shane Oliver told Australian Financial Review.

Economist Stephen Koukoulas told AFR he expects the sluggish credit growth to pick up now that house prices were on the move.

“I dare say the rise in prices and the ease at which people can get credit is likely to see credit growth pick up – probably an annual increase of 5-7 per cent,” he said.

Increasing house prices also make it less likely the RBA will cut rates again below their already record-low mark and Mr Koukoulas said the central bank had to balance the housing market with the broader economy.

“If they are getting worried about house prices, then maybe this is more of a regulatory issue rather than interest rate question,” he said.

APRA chairman Wayne Byres this week said his organisation’s focus right now was on financial stability rather than the property market.


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