Australia's central bank warns of growing risks in housing

RBA Governor Philip Lowe..The RBA is juggling the need to manage an increasingly optimistic outlook for the economy

RBA Minutes: Q4 Growth Faster than Expected, but Housing Risks Remain

Housing affordability, or the lack of it, has become a hot-button issue for the conservative government of Prime Minister Malcolm Turnbull, which has promised measures to ease the problem in its May budget. Also, the Reserve Bank of Australia's (RBA) March monetary policy meeting minutes, painted a mixed picture of the economy, adding sluggishness to market sentiments.

"Recent data continued to suggest that there had been a build-up of risks associated with the housing market".

"The Australian housing market continues to cause much angst around poor affordability and high household debt", said Shane Oliver, chief economist at AMP Capital.

The prospect of increased macroprudential measures to slow investor activity has been getting increased traction recently following remarks from several leading policymakers, including from the RBA, APRA and federal treasurer Scott Morrison, that tighter lending standards could be on the way.

Also on Tuesday, the Australian Bureau of Statistics said that house prices in Australia advanced 4.1 percent on quarter in the fourth quarter of 2016.

The pace has quickened even further this year. Figures from property consultant CoreLogic showed prices were now growing at an annual 19 percent in Sydney, while gains across the five capital cities amounted to 12.7 percent.

Much of that fever has been fuelled by borrowing for investment properties, driving household debt up to a record 180 percent of disposable income.

These, along with the inflation outlook, were the areas highlighted by RBA governor Philip Lowe as being key to determining the outlook for interest rates since he took over as governor in September previous year.

The yield on the benchmark 10-year Treasury note, hovered around 2.82 percent, the yield on 15-year note also traded flat at 3.21 percent and the yield on short-term 2-year remained steady at 1.81 percent by 04:20 GMT.

Despite the uncertain outlook over the housing and labour markets, Aird says that "it would take a sustained loss of momentum in job creation or a fall in dwelling prices for Lowe to entertain the idea of taking the policy rate lower".

"Neither outcome is in our central scenario and as such, we see the RBA on hold over 2017 and well into 2018".

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