SYDNEY – The recent rise in Australian home prices and rising evidence that the quality of mortgage lending could fall into the hands of the country’s banking regulator by the end of the year, with measures to cool the real estate market.
Australian house prices have returned to record highs, boosted by ultralow interest rates, a big jump in housing savings, and the Reserve Bank of Australia says interest rates are unlikely to be higher by 2024 ” at the earliest. “
Economists warn that if interest rates do not rise, so-called macroprudential devices will be needed to prevent overheating of the real estate market which could lead to rising household debt, and new buyers pushed to the sidelines.
“We are beginning to see some increase in risky lending, albeit from a low base. I expect a prudent macro tightening from later this year but with the pace at which lending and the real estate market catching up, it could come earlier, “said Shane Oliver, chief economist at AMP Capital.
Measures to slow house price growth could include a return to speed limits on investment loan growth and limits around the size of loans obtained, Mr Oliver said.
The Australian Prudential Regulatory Authority, the country’s banking regulator, has previously used macro-prudential tools after house prices jumped at low interest rates following the global financial crisis.
Reserve Bank of Australia Gov. Philip Lowe said he was carefully monitoring the rise in house prices, but said it was not the job of the central bank to target the real estate market.
Nevertheless, it will welcome moves to cool house prices if they become too hot.
Despite the economic downturn in the first half of 2020 due to the Covid-19 pandemic, house prices have remained stable.
Economists initially feared a sharp fall in residential house prices as unemployment rose and borders were closed for immigration. But the real estate market has kicked off as a wave of fiscal stimulus has ended in savings accounts.
House prices in Sydney, Australia’s largest regional property market, hit a record high this month. The recovery in Sydney follows a 15.3% decline from July 2017 to May 2019.
“The new high rate is good news for Sydney homeowners, but highlights the challenges for non-homeowners looking to enter the housing market as values rise. faster than revenue, “said Tim Lawless, head of research at CoreLogic.
George Tharenou, chief economist at UBS, said it is only a matter of time before APRA suspends a mortgage loan.
APRA’s own data on home lending in the fourth quarter published on Wednesday showed a sharp rise in “higher risk” mortgage lending, Mr Tharenou said. It is reasonable to assume that the decline in loan quality will widen into the first three months of this year, he said.
The proportion of new home loans with a high debt-to-income ratio rose to 59.3% in the fourth quarter from 57.7% in the third quarter, while loans with loans were high to co. Evaluation estimates come to 42.0% from 39.9%, APRA data showed.
Home-only loans raised interest rates by 19.3% in the fourth quarter from 18.7% in the third quarter, the highest ratio since mid-2019.
Felicity Emmett, a senior economist at ANZ Bank, said lending rates are definitely declining.
“As house prices and finance have continued to rise strongly in the first quarter, I expect another increase in the proportion of these higher risk loans,” she said.
This will justify regulators to implement prudent macro-tightening measures, perhaps before the end of the year, she said.
The regulator is likely to take a calm approach in the first instance, followed by stricter limits, possibly targeting high-income debt-to-income loans, Ms Emmett said.
Write to James Glynn at [email protected]; @JamesGlynnWSJ