RBA wary of ‘housing price inflation’

The Reserve Bank wants interest rates to stay low despite expressing concern about strong price growth in Sydney and Melbourne.

The Reserve Bank of Australia is keeping a close eye on rising prices in Australia’s two biggest markets, but still believes monetary policy should remain “accommodative”, according to the minutes of this month’s board meeting that were released yesterday.

Board members noted that housing investment looked to have grown strongly in the March quarter when deciding earlier this month toleave rates at a record low of 2 per cent.

“Conditions in the housing market in Sydney and parts of Melbourne had remained very strong, though trends were more mixed in other cities,” they concluded.

“Although housing price inflation had remained high in Sydney and, to a lesser extent, in Melbourne over recent months, there had been some divergence in price developments for different segments of these markets – price inflation of detached houses had increased, whereas price inflation for units had eased in both cities.”

Board members noted that there was a relatively low stock of dwellings for sale in Sydney and Melbourne and that dwellings took only a short time to sell.

They also noted that housing credit growth has remained steady at about 7 per cent, although the latest data on loan approvals had showed an increase.

“Over the past six months or so, growth in investor credit had eased back to be running at an annualised pace of a bit above 10 per cent,” the board said.

“However, over more recent months, there had been solid increases in housing loan approvals to both owner-occupiers and investors, particularly in NSW, following earlier declines.”

Board members also concluded they needed more time to assess how the May interest rate cut would affect housing loan approvals and credit data.

 

http://www.rebonline.com.au/breaking-news/9161-rba-wary-of-housing-price-inflation