Falling interest rates likely to push out more first-home buyers

AUSTRALIA’S housing market is not immune from trouble — and things are about to get worse, a financial expert has warned.

AUSTRALIA’S housing market is not “immune from trouble” and the Financial System Inquiry’s chair David Murray has warned it could get worse for entry-level buyers.

The former Commonwealth Bank chief executive on Wednesday conceded that breaking into the property market “was too hard now.”

“I think APRA (Australian Prudential and Regulation Authority) and the RBA (Reserve Bank of Australia) have a problem here,’’ he said.

“It’s hard for people to get into housing, so it’s a serious issue.

“It’s noticeable particularly as interest rates get lower and lower.”

PRESSURE’S ON: How low can interest rates go?

Mr Murray spoke at an Australian Centre for Financial Studies lunch in Melbourne on the importance of a strong financial system and sent a strong message to financial regulators following heightened predictions that cash rate could fall within the one per cent range this year.

The RBA kept the cash rate on hold at a record low 2.25 per cent this week and the nation’s unemployment is at its highest levels in more than 12 years at 6.4 per cent.

Mr Murray said trouble is brewing if these conditions continue and rates continue on their downward spiral.

Concerns ... Financial System Inquiry’s chair David Murray said breaking into the property market was only going to get harder with falling interest rates.

“If interest rates continue to fall I think there will have to be prudential offsets to limit the risks in the housing market,’’ he said.

“You can calculate for each quarter of a per cent (movement) you can add how much affordability that adds which comes through on price.

“There only has to be a noticeable pick-up in unemployment and this can turn very, very difficult.

“We already have a high-income to price ratio for houses in Australia and it’s just not the case that we’re immune from trouble here.’’

Soaring ... property prices across Australia continue to rise with the annual dwelling rising by 8.3 per cent in the past 12 months.

In Murray’s FSI’s final report he urged APRA to adjust the requirements for calculating risk weights for housing loans.

“In other countries they’ve limited to loan-to-value ratios for properties, Singapore and Hong Kong have done that for example,’’ he said.

Data released by CoreLogic RP Data this week showed the average capital city home prices rose by 0.3 per cent in February, taking the annual rise in property prices to 8.3 per cent.

The best-performing capital city was Melbourne where dwelling prices rose by 4.5 per cent in the three months since December, followed by Hobart (3.3 per cent), Sydney (2.8 per cent), Canberra (1.6 per cent), Adelaide (0.8 per cent) and Brisbane (0.5 per cent).

In Darwin dwelling prices fell by -1.0 per cent and in Perth -0.9 per cent.

Originally published as Falling interest rates likely to push out more first-home buyers