Housing risks high despite tighter lending

Sydney's housing markets have been red hot. Photo / Thinkstock

New entrants will cheer at lower prices but economy will suffer as real estate seems likely to miss sweet spot.

Risks in the housing market remain high despite a crackdown on lending standards which has made the banking system safer, the Reserve Bank of Australia says.

"The risks surrounding housing and mortgage markets seem higher than average at present," the bank said in its biannual Financial Stability Review.

"These risks do appear to be comfortably manageable at this stage, but they underscore the need to maintain sound lending standards."

Measures introduced by the Australian Prudential Regulation Authority (APRA) had slowed investor demand for housing, the bank said, but it still remained at an elevated level.

Investor activity had been a major factor in soaring home prices in Australia's two largest cities.

Regulators had found that some lending standards had actually been looser than first thought, increasing the risks of a downturn in the residential market, the RBA said.

"As a result, some borrowers have had less of a safety margin against unexpected falls in income, increases in expenses or increases in interest rates."

The bank added that the level of investor activity was also higher over recent years than originally thought.

But there had been tentative indications of some slowing in the red hot Sydney and Melbourne housing markets recently, it said.

"Auction clearance rates have fallen and price growth has eased in Sydney of late."

Owner-occupiers were also reportedly flocking back into the property market. The value of loans approved for owner-occupied housing jumped 6.1 per cent in August, while approvals for housing investment slumped 0.4 per cent, the third fall in the past four months.

And there was still strong price competition for lower-risk owner-occupier borrowers, despite the forthcoming increase in mortgage rates announced by Westpac, the bank noted.

Despite the cooling impact macroprudential measures appear to be having on the housing market, Commonwealth Bank of Australia economist Gareth Aird says the RBA will not be in a hurry to cut interest rates further from already record lows of 2 per cent.

"We very much doubt that the RBA would want to provide further stimulus to the housing market just when it looks like some heat was coming out of things, as had been desired," he said.

"We see the RBA leaving rates on hold on Melbourne Cup day."

While the housing market remained a long way from oversupply nationwide, some areas and apartment markets appeared to be reaching that point, the RBA said.

"Particularly the inner-city areas of Melbourne and Brisbane.

The bank said risks were also rising in the commercial property sector, with prices rising much faster than rents and overbuilding also evident in the Perth and Brisbane office markets. AAP