June 13, 2018 / 4:33 AM / 9 months ago

Australia central bank governor sees no need to worry about house price slowdown

MELBOURNE/SYDNEY (Reuters) - Australia’s central bank governor said on Wednesday the current slowdown in the housing market isn’t a cause for concern but flagged the need for policy to remain at record lows for the foreseeable future with wage growth and inflation still weak.

Home prices across Australia’s major cities have fallen for successive months since late last year as tighter lending standards at banks cooled demand in Sydney and Melbourne - the two biggest markets.

Housing credit growth has hit its slowest pace in six years, building approvals have come off a peak and home prices posted their first annual drop since 2013 last month.

However, Reserve Bank of Australia (RBA) Governor Philip Lowe said these issues are not a cause for concern.

“We shouldn’t fret just because housing prices are not rising at the rate they used to. And if they come down that’s okay,” Lowe said in Melbourne, responding to a question after a speech titled “Productivity, Wages and Prosperity”.

“House prices in Sydney and Melbourne are still 40 percent up from where they were in 2014. You’ve got to have a longer-term perspective here.”

The two cities comprise about 60 percent of Australia’s housing market by value and 40 percent by number of homes.

“The thing that gives me some comfort is the fact that lending standards have been strengthened a lot over recent years,” Lowe added.

Policymakers have long worried about a debt-fueled binge in the property market that led prices to unsustainably high levels and took the country’s household debt to income ratio to a record high 190 percent.

Indeed, the RBA is paying close attention to household finances and consumption growth which has remained soft even as the country entered its 27th year of recession-free growth last quarter.

That debt pile coupled with a snail-paced rise in wages has squeezed consumer spending, in-turn weighing on inflation.

Core inflation, a closely watched measure, has undershot the RBA’s target for more than two years now.

But the RBA is reluctant to ease rates further as it fears that would only push property prices higher.

The central bank last cut rates to 1.50 percent in August 2016, making the current stretch of stable policy the longest on record.

“At this stage, a sustained pick-up in inflation to around the midpoint of the target range is likely to require faster wages growth than we are currently experiencing,” Lowe said in his speech.

“This increase is likely to be only gradual,” he added.

“Given this, there is not a strong case for a near-term adjustment in monetary policy.”

Lowe was still confident of a gradual pick-up in wage increases from the current 2 percent as more jobs are added and with some companies citing constraints in finding suitable workers.

“If this continues to be the case, it is likely that the next move in interest rates will be up, not down,” Lowe said.

Reporting by Swati Pandey in SYDNEY and Sonali Paul in MELBOURNE; Editing by Sam Holmes

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