Return of hot property prices ‘not a good thing’, warns economist

In a research note over the weekend, AMP Capital chief economist Shane Oliver said Sydney and Melbourne housing markets are looking to be “a bit more of a challenge” for the Reserve Bank, who has until now been tipped to cut rates again in November.

“The perk up in finance commitments to investors, HIA new home sales and weekly auction clearance rates in Sydney and Melbourne despite mixed readings on what home prices are doing suggest that the Sydney and Melbourne property markets may be getting a bit too hot again,” Mr Oliver said.

“Returning to rapid house price gains at a time when the supply of apartments is starting to surge would not be a good thing,” he said.

“But interest rates need to be set on the basis of what is right for the average of Australia — not just house prices in two cities so the RBA has been right to cut as the average of Australia needed it. However, pressure is likely shifting back to APRA to further tighten lending standards.”

Last week Mr Oliver said the prudential regulator could call on banks to reign in investor lending even further following to consecutive months (April and May) of strong investor housing finance commitments.

“It’s doubtful that investor lending will be allowed to pick up too far as there is a good chance that APRA will lower the 10 per cent limit to around 7-8 per cent,” he said.

APRA’s macroprudential measures so far include keeping lending to investors below 10 per cent annual growth and raising capital adequacy requirements for the major banks and Macquarie.

The regulatory action was taken following a strong surge in property prices in Sydney, where house prices have risen by more than 50 per cent in three years, and to a lesser extent in Melbourne.

[Related: APRA tipped to tighten investor lending even further]