Reserve Bank acknowledges record low interest rates could create a house price bubble – as home values surge to all-time highs
- Reserve Bank of Australia has acknowledged risk of a property price bubble
- It cut interest rates to a record-low of 0.1 per cent in November but is worried
- March meeting minutes noted ‘risks inherent’ as investors bought more housing
The Reserve Bank of Australia has acknowledged record-low interest rates could spark a house price bubble.
The cash rate was left on hold again in March at an all-time low of 0.1 per cent and governor Philip Lowe has repeatedly promised to leave them at that level until 2024.
For the first time since cutting rates in November, however, the Reserve Bank has acknowledged its Covid monetary policy settings could cause a property price bubble.
The minutes of its March meeting revealed RBA board members were concerned about this.
The Reserve Bank of Australia has acknowledged record-low interest rates could spark a house price bubble. The cash rate was left on hold again in March at an all-time low of 0.1 per cent and governor Philip Lowe has repeatedly promised to leave them at that level until 2024
‘They acknowledged the risks inherent in investors searching for yield in a low-interest rate environment, including risks linked to higher leverage and asset prices, particularly in the housing market,’ it said.
The RBA’s thinking was revealed hours after the Australian Bureau of Statistics revealed residential home prices in the capital cites rose by 3 per cent during the December quarter.
Melbourne and Canberra prices rose by an even stronger 3.4 per cent followed by 3.1 per cent in Hobart, 3 per cent in Sydney, 2.9 per cent in Perth, 2.7 per cent in Brisbane, 2.6 per cent in Adelaide and 2.2 per cent in Darwin.
For the first time since cutting rates in November, however, the Reserve Bank has acknowledged its Covid monetary policy settings could cause a property price bubble. The minutes of its March meeting revealed RBA board members were concerned about this. Pictured are houses in Sydney’s west
The total value of Australia’s 10.6 million dwellings rose to a record $7.724trillion during the final three months of 2020 with national average property prices standing at $728,500.
More up-to-date CoreLogic data for February showed property prices hitting record highs in 53 or Australia’s 88 sub markets.
Capital city and regional property prices climbed by 2.1 per cent in February – the steepest monthly increase since August 2003, those figures revealed.
Sydney prices last week surpassed the previous record highs reached in 2017, when the Australian Prudential Regulation Authority, the banking regulator, cracked down on investor and interest-only loans.
Median house values in Australia’s biggest city are well above the $1million mark.
CommSec chief economist Craig James said property prices were likely to keep rising in 2021 but the pace could slow if Australia’s border remained closed to foreigners into next year.
‘Interest rates will remain super-low for a number of years,’ he said.
‘As a consequence, home prices are likely to keep rising – especially if employment continues to recover and job security remains strong.
‘But much will depend on the re-opening of the foreign borders. If the borders stay shut until 2022 then home price growth should ease.’
The Commonwealth Bank, CommSec’s parent company, is predicting 8 per cent property price growth in 2021 followed by 6 per cent in 2022.
The RBA’s thinking was revealed hours after the Australian Bureau of Statistics revealed residential home prices in the capital cites rose by 3 per cent during the December quarter. Pictured are houses at Balmoral on Sydney’s lower north shore
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