RBA mulls stepping in as property prices pose 'major risk' to economy

au.finance.yahoo.com
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As home prices rise, so too does household debt, the Reserve Bank has warned. Find out what the RBA is watching cautiously.
The RBA is watching the property market closely as household debt climbs (Source: Getty)

The Reserve Bank of Australia (RBA) is considering what it can do to temper soaring house prices, which is triggering mounting household debt and threatening the nation's financial stability.

Despite previous public statements from Governor Philip Lowe that house prices were not the RBA's responsibility, assistant governor Michele Bullock revealed that it was assessing "tools" that "could be employed in Australia" to manage the risks associated with house prices.

The ever-growing property market, and any potential house price crashes, poses a potential "financial stability risk," Bullock said.

"The prospect of large declines in property prices presents significant balance sheet risks for households, businesses and lenders," she said in a speech on Wednesday.

Strategies that were previously adopted during the Global Financial Crisis (GFC) are no longer appropriate because the risks the property sector faces today are different, she said.

"Tools that address serviceability of loans and the amount of credit that can be obtained by individual borrowers are more likely to be relevant," Bullock said.

"We have seen such tools used in a number of countries in recent times and they could be employed in Australia should the circumstances be judged to warrant it."

And whilst Bullock said the Aussie property market prices saw a "surprising and dramatic rebound" when the pandemic hit, this has also brought new risks.

"Strongly rising housing markets and housing credit have been a feature of many other countries over the past 18 months as monetary policy has lowered lending rates and governments have provided fiscal support," Bullock said.

"However, while household debt to income in Australia hasn't increased much over recent years, it is at a high level, both historically and relative to other countries."

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