'Ripple effect' hits capitals

Reserve Bank of Australia Governor Glenn Stevens has predicted a near-term future of interest rate stability, although weakening property markets in China do pose a possible challenge.

Speaking at the monthly Reserve Bank board meeting, Mr Stevens said recent Chinese growth has been in line with policymakers’ objectives, although some data suggested a slowing in recent months.

Mr Stevens said overall, financial conditions remain very accommodative.

“Long-term interest rates and risk spreads remain low … markets still appear to be attaching a low probability to any rise in global interest rates or other adverse event over the period ahead,” Mr Stevens said.

“Credit growth is moderate overall, but with a further pick-up in recent months in lending to investors in housing assets.

“Dwelling prices have continued to rise over recent months. On present indications, the most prudent course is likely to be a period of stability in interest rates.”

RP Data’s head of research, Tim Lawless, said the softer housing market conditions over September may have eased some of the RBA’s concern for the housing market.

In RP Data’s weekly market update, Mr Lawless said growth rates haven’t been accelerating since early this year. However, the future rate of growth still needs to be monitored. Mr Lawless added if investor interest isn’t moderated in Sydney and Melbourne then the RBA and the Australian Prudential Regulation Authority (APRA) may intervene to slow down investment without raising interest rates.

“Investor interest in Sydney and Melbourne has been significant compared with other capital cities and compared with historical ratios of owner-occupier loans to investor loans,” Mr Lawless said.

“It will be important to monitor the trend rate of growth, particularly across Sydney and Melbourne, where values have risen substantially more than any other city."

LJ Hooker chief executive officer Grant Harrod said the housing market remains buoyant with the growth from Sydney and Melbourne casting a ripple effect to the other more affordable capital-city markets. The related growth in construction, according to Mr Harrod, is also helping to rebalance the economy, but he remains cautious.

“However, price growth and investor demand for housing, especially in Sydney and Melbourne, has seen the RBA raise the prospect of introducing macro-prudential measures to help de-risk the market,” Mr Harrod said.

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