Philip Lowe has some high-powered backing if he leaves interest rates on hold Tuesday as widely expected...
(Bloomberg) -- Days after the Reserve Bank of Australia governor signaled that rate cuts weren’t in the national interest amid record household debt, the securities regulator said it was looking at mortgage lending standards across the banking sector. The Organisation for Economic Co-operation & Development last week highlighted risks posed by Australian property and private debt.
Sydney house prices have soared 73 percent in the past five years, ranking it second only to Hong Kong as the world’s least affordable housing market, while Melbourne prices shot up 52 percent in response to the RBA’s multi-year easing cycle. The central bank had sought to steer economic growth away from mining investment and toward Australia’s traditional services industries led by exports of tourism and education.
“The recent periods of rate cuts -- February and May 2015 and May and August 2016 -- are associated with significant increases in house-price inflation,” while price growth in the intervening periods slowed significantly, said Bill Evans, Westpac Banking Corp.’s veteran chief economist. “These movements will not be lost on the governor.”
Since Lowe took the helm in September, rates have been held at a record-low 1.5 percent. That will remain the case following policy makers’ Tuesday meeting in Sydney, economists predict and money markets show. Most economists expect no change for the rest of this year.
Low rates have played a key role in Australia’s property boom, along with a decade of high population growth on the east coast and lack of house construction. Moreover, with the economy in flux amid the end of the mining investment boom, local investors turned to bricks and mortar to park cash. Overseas buyers, notably from China, also sought to store their wealth in housing Down Under -- in Sydney and Melbourne in particular.
A resulting surge in household debt last week prompted Australia’s securities regulator to look at mortgage lending standards across the banking sector amid widening concern among both politicians and regulators about the foundations of the housing market.
The OECD said in a report last week the biggest threat to Australia is from a hard landing in the property market, warning it could develop into a “rout on prices and demand with significant macro-economic implications.” The Paris-based group echoed warnings Lowe himself gave to lawmakers during testimony last month: that piling up further household debt on already record-high levels could see consumption slump.
Sydney house prices have soared 73 percent in the past five years, ranking it second only to Hong Kong as the world’s least affordable housing market, while Melbourne prices shot up 52 percent in response to the RBA’s multi-year easing cycle. The central bank had sought to steer economic growth away from mining investment and toward Australia’s traditional services industries led by exports of tourism and education.
“The recent periods of rate cuts -- February and May 2015 and May and August 2016 -- are associated with significant increases in house-price inflation,” while price growth in the intervening periods slowed significantly, said Bill Evans, Westpac Banking Corp.’s veteran chief economist. “These movements will not be lost on the governor.”
Since Lowe took the helm in September, rates have been held at a record-low 1.5 percent. That will remain the case following policy makers’ Tuesday meeting in Sydney, economists predict and money markets show. Most economists expect no change for the rest of this year.
Low rates have played a key role in Australia’s property boom, along with a decade of high population growth on the east coast and lack of house construction. Moreover, with the economy in flux amid the end of the mining investment boom, local investors turned to bricks and mortar to park cash. Overseas buyers, notably from China, also sought to store their wealth in housing Down Under -- in Sydney and Melbourne in particular.
A resulting surge in household debt last week prompted Australia’s securities regulator to look at mortgage lending standards across the banking sector amid widening concern among both politicians and regulators about the foundations of the housing market.
The OECD said in a report last week the biggest threat to Australia is from a hard landing in the property market, warning it could develop into a “rout on prices and demand with significant macro-economic implications.” The Paris-based group echoed warnings Lowe himself gave to lawmakers during testimony last month: that piling up further household debt on already record-high levels could see consumption slump.
