RBA sees signs property market cooling in Sydney and Melbourne

THE red-hot Sydney and Melbourne property markets are showing signs of cooling, according to the Reserve Bank.

A women walks past some residential houses in Sydney on Wednesday, Oct. 14, 2015. Westpac will raise its variable mortgage rates by 0.20 percentage points to 5.68 per cent on November 20, when residential investment property loan rates will go up by the same amount to 5.95 per cent. (AAP Image/Paul Miller) NO ARCHIVING

RISKS in the housing market remain high and the safety net for borrowers is smaller, the Reserve Bank says. “The risks surrounding housing and mortgage markets seem higher than average at present,” the Reserve Bank said in its biannual Financial Stability Review.

“These risks do appear to be comfortably manageable at this stage, but they underscore the need to maintain sound lending standards.” A crackdown on lending standards by the Australian Prudential Regulation Authority (APRA) has slowed investor demand for housing, the bank said, but it still remains at a high level.

Investor activity has been a major factor in soaring home prices in the nation’s two largest cities.

Regulators have found some lending standards had actually been looser than first thought, increasing the risks of a downturn in the residential market, the RBA said.

“As a result, some borrowers have had less of a safety margin against unexpected falls in income, increases in expenses or increases in interest rates,” the bank said.

The RBA added that the level of investor activity was also higher over recent years than originally thought.

But there have been tentative signs of some slowing in the red hot Sydney and Melbourne housing markets recently, it said.

“Auction clearance rates have fallen and price growth has eased in Sydney of late,” the bank said.

Owner-occupiers are also reportedly flocking back into the property market.

The value of loans approved for owner-occupied housing jumped 6.1 per cent in August, while approvals for housing investment slumped 0.4 per cent, the third fall in the past four months. While the housing market remains a long way from oversupply nationwide, some areas and apartment markets appear to be reaching that point, the RBA said.

“Particularly the inner-city areas of Melbourne and Brisbane,” it said.

Risks are also rising in the commercial property sector, with overbuilding also evident in the Perth and Brisbane office markets, the RBA said.