RBA says expect slower housing price growth and tells banks they mustn't lower lending standards to bring back the boom
The RBA says housing price growth will be slower in future than in the past three 30 years.
But the central bank doesn't have a strong view about whether the ratio of prices to income should be mildly rising, falling or constant.
But they do think it is very unlikely to rise rapidly once again.
"Nor would we want to see another boom like the one a decade ago,"Luci Ellis, the RBA's head of its financial stability department told the Citibank Property Conference.
She suggested if the bank's analysis was correct Australia was facing the ‘new normal’, which implied additional changes to future outcomes.
"A second implication is that, if housing price growth is now cycling around a lower average, there will be more periods when prices are falling (a little) in absolute terms.
"This has implications for the loss given default (LGD) in mortgage portfolios.
"In my view, this vindicates APRA's decision to require a higher LGD floor than the 10 per cent minimum built into the Basel rules for banks using their own models.
"It also vindicates its decision to require higher risk weights for non-standard and high loan-to-valuation loans for lenders that do not use their own models.
"This has obvious implications for the rate of growth of bank balance sheets and profits.
"We have been making this point for a while," she said.
"Financial stability requires that the owners of banks accept that domestic balance sheet growth will be slower from here than it was in the previous 20 years or so.
"We would not want banks to ease their lending standards to make more loans and bring back the boom times.
"Nor would we want them to cut costs in a way that impinges on their risk-management capabilities."
