Investor Alert

Dow Jones Newswires

Sept. 21, 2021, 11:02 p.m. EDT

Australia’s central bank ramps up warnings about soaring house prices, instability risk

By James Glynn

SYDNEY — The Reserve Bank of Australia has significantly ramped up warnings about the growing risk of financial-sector instability if house prices continue to surge, adding to already considerable levels of household debt across the economy.

Michele Bullock, RBA assistant governor for financial system, said in a speech on Wednesday that even though Australia’s banks have strong balance sheets and lending standards are being maintained, “a high level of debt could pose risks to the economy in the event of a shock to household incomes or a sharp decline in housing prices.”

“It is these macro-financial risks that warrant close watching. Whether or not there is need to consider macro-prudential tools to address these risks is something we are continually assessing,” she added.

The warning comes as Australian house prices are expected to climb by more than 20% in 2021, fueled by ultralow interest rates, the promise that interest rates will stay low for some time, and a tax system that encourages property-sector investment.

The RBA said in minutes of its Sept. 7 policy meeting released Tuesday that interest rates are unlikely to be raised before 2024, a timeline that is likely to put it among the last of the world’s major central banks to begin normalizing policy settings.

RBA Gov. Philip Lowe recently ruled out the use of higher interest rates to slow house price growth, saying such a move would come at the cost of fewer jobs and slower economic growth.

Bullock’s comments appear to increase the probability that mortgage-lending clamps will soon be reintroduced by the bank regulator to cool off the property market.

House prices have jumped even as the economy has been hit hard by the pandemic, denting the job market.

A sharp third-quarter downturn across the economy due to the pandemic has put a cloud over the job market, but the economy is expected to rally again in 2022.

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