A senior Reserve Bank official has welcomed slowing rates of property price growth and is hoping for a soft landing for the housing market.
Amid growing fears a property bust could spur a recession, RBA deputy governor Philip Lowe said regulatory measures and an increase in housing supply are slowing the rate of residential price growth.
"It's too early to be definitive but I think we're on the cusp of seeing the supply response finally kick in, moderating price growth. And I hope that's the case," Dr Lowe told a conference on Tuesday.
Dr Lowe said the risks of the housing market impacting the broader economy have increased in recent years, and Sydney prices have slowed, albeit slightly.
But he refused to back a report by Macquarie Bank that found house prices are set to plummet by 7.5 per cent over the next two years due to an oversupply of apartments and slower than expected population growth.
"I don't want to endorse that particular number," he said.
"House prices in Sydney have risen by more than 20 per cent in the past year and prices are still rising."
However tighter lending standards imposed by the banking watchdog are gradually working their way through the system, he said.
Many lenders have hiked interest rates for investors and made it harder for them to get loans in response to the Australian Prudential Regulation Authority's crackdown, which imposed a 10 per cent `speed limit' for investor property loan growth.
"Ideally we would now go through a period of quite modest house price growth, I think that would dim the risk of household balance sheets a little," Dr Lowe said.
When asked if state-based stamp duties should be used to temper demand for housing, he said the key to softening the market was increasing supply.
"It's a mistake to think that we can manage this through playing around with various levers that affect demand," he said. And while APRA's moves also cut rates for owner occupiers, Dr Lowe warned Australians not to overcommit with their home loans.
The central bank's second in charge said punters need to make allowances for when the official cash rate, now at an all-time low of two per cent, does eventually rise.
"People do need to be careful... debt levels can't keep rising faster than income," he said.