Price upswing possible as RBA minutes express concern about housing supply

The RBA has expressed concern about the level of housing supply triggering price growth.

It noted there had been further signs of a turnaround in established housing markets, especially in Sydney and Melbourne, although housing turnover had remained low.

But the RBA also noted there was likely to be further weakness in dwelling investment in the near term.

Members recognised that this could sow the seeds of an upswing in the housing price cycle at some point, particularly given the lengthy stages in the construction of higher-density residential housing.

Indicators suggested that dwelling investment had declined further in the June quarter and indicators of earlier stages of residential building activity had remained weak; building approvals had declined further in June and other measures of early-stage activity and buyer interest had remained at low levels.

Demand for credit by investors continued to be subdued and credit conditions, especially for small and medium-sized businesses, remained tight, it noted.

The September minutes also noted a recent pick-up in loan approvals had followed a significant decline over the preceding two years which was consistent with the signs of stabilisation in the established housing market.

The RBA noted reports that housing prices in Sydney and Melbourne had risen noticeably in August and auction clearance rates had increased further, although volumes had remained low.

"Housing market conditions had been subdued elsewhere, although there were signs of housing prices stabilising in Brisbane.

"Housing turnover had remained low.

"Consequently, spending on home furnishings and other housing-related items was not expected to contribute to consumption growth in the near term."