Property prices rose 2.1% in February according to CoreLogic, the largest month-on-month rise in 17 years and the fifth consecutive month of increases.
Reserve Bank (RBA) Governor Phillip Lowe said at recent meetings the board had discussed these movements in the housing market.
"There are many moving parts at present: record low interest rates; a shift in preferences towards houses and away from apartments; strong demand for housing outside our largest cities; large government incentives for first-home buyers and home builders; and the slowest population growth in a century," Dr Lowe said.
"Time will tell as to how these various factors ultimately balance out, but history suggests that shifts in population growth can have large effects on the housing market."
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Dr Lowe reiterated it was not the responsibility of the RBA to target housing prices and said it did not make sense to do so.
"I recognise that low interest rates are one of the factors contributing to higher housing prices and that high and rising housing prices raise concerns for many people," he said.
"There are various tools, other than higher interest rates, to address these concerns, leaving monetary policy to maintain its strong focus on the recovery in the economy, jobs and wages."
No intervention...for now
Dr Lowe said the RBA will not intervene in the booming housing market, but was continuing to pay attention to lending standards.
"Looser standards would increase medium-term risks and add to the upward pressure on prices, so would be of concern," he said.
"Reflecting this, the Council of Financial Regulators has indicated that it would consider possible responses should lending standards deteriorate and financial risks increase.
"We are not at this point, but we are watching carefully."
However Westpac, which forecast house prices would rise by 20% in the next two years, believes the central bank will be forced to step in late next year and introduce Loan to Value (LVR) restrictions on investors.
"They have clearly developed more confidence in these tools following their successful deployment in 2015 and 2017 and the RBA has already indicated these policies are an option if housing market concerns resurface," Westpac economist Bill Evans said.
It wouldn't be the first time the RBA has changed its policy position: after taking the cash rate to 0.25%, the central bank stated it was at its lower bound, before cutting again to 0.10% in November.
RBA holds firm on no rate rise until '24
A survey of leading economists by The Conversation found the majority thought the RBA would hike rates before 2024, which was the year stated by the central bank.
Other economists from NAB and Westpac have echoed these sentiments, with many believing rising house prices would force the RBA to change its position.
However, Dr Lowe said a hike in the cash rate before 2024 was highly unlikely.
"As I discussed earlier, over the past couple of weeks market pricing has implied an expectation of possible increases in the cash rate as early as late next year and then again in 2023," he said.
"This is not an expectation that we share."
Dr Lowe pointed to record-low wage growth, protracted unemployment recovery, and stagnant inflation as factors that would prevent the RBA from achieving its goal of inflation of 2-3% and full employment.
"This is the basis for our assessment that the cash rate is very likely to remain at its current level until at least 2024," he said.
Photo by Cullen Jones on Unsplash
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