Commercial property risks looms as housing credit for investors outstrips owner-occupiers: RBA March meeting minutes

Strong, modest and even in decline. That was how the RBA board views the various residential property markets around the country.

A bit like the three bears and their porridge. And they thrown in a commercial property risks warning too.

The central bank advised the current strength of housing construction and the increase in housing prices were expected to provide a measure of support for consumption, according to the RBA March minutes.

It noted housing price growth remained strongest in Sydney and to a lesser extent Melbourne, while price rises in other parts of the country had been more modest, while prices had even declined in some cities recently.

"A range of indicators, including residential building approvals, suggested further strong growth of dwelling investment in the near term," the minutes said.

"Growth in housing credit for owner-occupiers had remained around 6% in six-month-ended annualised terms, while growth in credit for housing investors was noticeably faster, at over 10% measured on the same basis."

The minutes noted activity in the housing market had remained strong.

"Housing prices had continued to increase strongly in Sydney and at a solid pace in Melbourne.

"In other capital cities, trends had been more mixed and annual increases in capital city housing prices (excluding Sydney and Melbourne) had averaged about 3 per cent.

"Growth of dwelling investment was estimated to have picked up in the December quarter and was expected to remain at a high level in the near term.

"While credit had continued to grow a little faster than incomes, household leverage had not increased significantly and the Bank would continue to work with other regulators to assess and contain risks that might arise from the housing market."

It noted risks in the household sector continued to be centred on housing and mortgage markets.

"The composition of these markets remained skewed to investor activity, especially in Sydney.

"Members noted that, at the margin, the recent decline in interest rates could boost the housing market, including prices.

"The measures announced by the Australian Prudential Regulation Authority and Australian Securities and Investments Commission in December were designed to temper the housing market risks faced both by households and lenders, although these risks also needed to be placed in the context of the prevailing low levels of household stress."

The bank made a rare commentary on the commercial property markets.

"Members further noted that risks had been beginning to build in commercial property markets, including developers of residential as well as non-residential property. Prices in several market segments had been rising, even as vacancy rates remained high and leasing conditions weakened," the minutes said.

In conclusion the board minutes noted the current setting of monetary policy had been accommodative for some time and that the recent reduction in the cash rate would provide some further support to the economy.

"They also acknowledged that a lower exchange rate would help achieve balanced growth in the economy.

"Nonetheless, on the basis of the current forecasts for growth and inflation, members were of the view that a case to ease monetary policy further might emerge.

"In considering Whether or not to reduce the cash rate further at this meeting, members saw benefit in allowing some time for the structure of interest rates and the economy to adjust to the earlier change.

"They also saw advantages in receiving more data to indicate Whether or not the economy was on the previously forecast path.

"Further, they noted the greater degree of uncertainty about the behaviour of borrowers and savers in a world of very low interest rates.

"Taking account of all these factors, members judged it appropriate to hold the cash rate steady for the time being, while recognising that further easing over the period ahead may be appropriate to foster sustainable growth in demand while maintaining inflation consistent with the target."