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Shane Oliver has warned that the Reserve Bank of Australia could soon take action to deal with the “danger signs” in the property market.
Mr Oliver, who is chief economist at AMP Capital, said although the market is “not at the bubble extreme it was a decade ago”, it is becoming uncomfortably hot.
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“The proportion of housing finance commitments going to investors is now back to around the 50 per cent high seen a decade ago, suggesting that the market is becoming more speculative,” he said.
“And there are signs that homebuyers are starting to extrapolate recent strong price gains into the future which is very dangerous.”
Mr Oliver said the Reserve Bank has become concerned about speculative activity and the risks this poses to the economy when the property cycle eventually turns down.
He added that the Reserve Bank was reluctant to respond with an interest rate rise because this could damage the economy and push the Australian dollar too high.
“As a result, APRA is more closely monitoring the banks, and the Reserve Bank and APRA are now discussing steps that could be taken to ensure sound lending practices are maintained with a focus on investors.”
Mr Oliver said the best response would be for the Reserve Bank to increase its efforts to warn homebuyers of the need to be cautious.
“But if that fails in quickly cooling the property market, expect an announcement from APRA and the Reserve Bank on lending restrictions likely targeting investors in the next few months,” he said.
[Related: Pointing the finger over high housing prices]
