The rapid rise in Australian house prices isn’t problematic and won’t continue indefinitely, a central bank board member has said, before sounding a note of caution about the country’s latest employment data.
House prices in Australia rose about 11 per cent last year, prompting concerns that the market could overheat. Sydney -- where house prices are among the highest in the world -- and Melbourne were well ahead of that national pace, at around 15 per cent.
“It is not anything approaching a crisis,” John Edwards said in an interview with The Wall Street Journal, though he added that house price growth was an issue worth keeping an eye on.
Mr Edwards is a member of the Reserve Bank of Australia’s interest-rate-setting board.
Data this week showed the value of mortgage lending to property investors jumped 6.8 per cent in July from the previous month, lifting the gain to 30 per cent over the past 12 months. Mortgage lending to investors accounted for 49.7 per cent of all housing loans, the highest share of the monthly total on record.
Low interest rates, favourable tax treatment for property investment and foreign demand are driving the house price growth.
RBA governor Glenn Stevens said last week that more interest rate cuts might inflame prices. But he also said house prices could eventually fall. Mr Edwards backed that assessment.
Mr Edwards said housing credit growth, high amounts of household debt and weak income growth would cool prices. “It is not obvious how far this can run,” he added.
He also said job creation in Australia remained relatively weak overall, despite data earlier yesterday showing that employment rose by a record 121,000 in August. Unemployment hit a 12-year high of 6.4 per cent as recently as July.
“The number on job creation, you wouldn’t expect that to be sustained. It is extraordinarily high,” Mr Edwards said, adding that employment growth also wasn’t as weak as implied in the July figure.
He also said the recent fall in the Australian dollar reflected its sensitivity to rhetoric out of the US Federal Reserve, and that it was clear the Fed would eventually raise interest rates, and therefore the Australian dollar would be weaker over time.