Disparate housing markets, but Sydney prices look rather exuberant: RBA Governor Glenn Stevens
Sydney prices – up by a third since 2012 – look rather exuberant, the Reserve Bank of Australia governor Glenn Stevens says.
But he added: "popular commentary is, in my opinion, too focused on Sydney prices and pays too little attention to the more disparate trends among the other 80% of Australia."
He noted the continued role of Australian Prudential Regulation Authority and Australian Securities and Investments Commission on addressing risks in the housing market.
"APRA has announced benchmarks for a few aspects of banks' housing lending standards and both APRA and the Reserve Bank will be monitoring the effects of these measures carefully; at this stage, it is still too early to judge them.
"We can only say that over the past few months, the rate of growth of credit for housing has not picked up further."
He said credit conditions are only one of several factors at work here.
"But credit conditions are very easy.
'So while the conduct of monetary policy can’t allow these financial considerations to dominate the ‘real economy’ ones completely, nor can it simply ignore them.
"A balance has to be found," he said speaking to business executives in New York on Monday, at a luncheon of The American Australian Association hosted by Goldman Sachs.
Stevens laid out why further interest rate cuts were possible, suggesting the economy was too soft to generate significant inflation and that weak employment growth meant there is very little prospect of a wages-driven prices breakout.
"Interest rates should be quite accommodative and the question of whether they should be reduced further has to be on the table," he said.
However, he indicated the bank's outlook on monetary policy was heavily complicated by the fact household debt is at record levels.
"But household leverage starts from a high level, having risen a great deal in the 1990s and early 2000s.
"The extent to which further increases in leverage should be encouraged is not easily answered, but nor can it be conveniently side-stepped.
"Even if we chose to ignore it, monetary policy's ability to support demand by inducing households to bring forward spending that would otherwise be done in future might well turn out to be weaker than it used to be.
"For a start, households already did a lot of that in the past and, in any event, future income growth itself looks lower than it did a few years ago."