The head of the Reserve Bank of Australia says house prices aren't rising too fast but has warned buyers not to over-extend themselves when taking out a home loan.

RBA governor Glenn Stevens says the recent surge in house prices is reversing an earlier weaknesses.  “My own view, thus far, has been that some rise in housing prices is part of the normal cyclical dynamic,” he told a Citi Group Investment Conference in Sydney on Tuesday.

“Moreover, credit growth, at between four and five per cent per annum to households, and less than that for business, does not suggest that rising leverage is so far feeding the price rise.

“Hence, it has been a little too early to signal great concern.”

Mr Stevens said that while credit growth is quite low at the moment, borrowing by investors in the Sydney housing market was becoming “noticeably stronger”.

“We have certainly experienced higher rates of growth of finance than that in the past,” he said.

“Nonetheless, as this activity continues, lenders and borrowers alike would be well advised to take due care.

“It is very important that strong lending standards remain in place, and that decisions be based on sensible assumptions about future returns.

“That’s what we need if we are to experience a long and sustainable expansion in housing investment that houses our growing population at acceptable cost, and pays reasonable returns on the capital deployed.

“That’s the sort of outcome we want, as part of the more balanced growth.”  Mr Stevens also noted there had been improved consumer and business sentiment in Australia.

“It is not yet clear to what extent, or when, these more favourable trends in confidence will translate into intentions to spend, invest and employ.

“The pace of new dwelling construction is starting to respond to higher prices in the established property market, as we need it to. But at this stage, the available information suggests that broader investment intentions in the business community remain subdued.

“It may be a while yet before we can expect to see conclusive evidence of a change here.”


By Jason Cadden