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Low interest rates and the increased first home buyer grant are unlikely to lead to a US-type property market disaster, according to the RBA.
In an analysis of the Australian housing market released yesterday, the RBA’s head of economic analysis Anthony Richards said a return to more normal interest rate levels would be unlikely to trigger a wave of defaults because of the conservative lending standards in place in Australia.
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“In any case, many of the lenders that might have been most likely to write riskier loans have scaled back their activity.
“The past year and a half has seen lending standards tighten in Australia with a significant shrinkage in the amount of low-doc and non-conforming lending,” he said.
The RBA’s reassurances follow warnings from economist Steve Keen earlier this week that the increased first home owner grant was encouraging the most vulnerable Australians into the housing market.
While some of the loans written in the current market would inevitably turn sour, Mr Richards said the risk of non-performing loans increasing to the extent seen in the United States was low.
Nevertheless Mr Richards said it was important households considering home ownership carefully assess their circumstances and whether they could service their mortgage if rates did return to more normal levels.
