Stevens wonders if it's time to worry

Residential property investors and the lenders that support them "might be starting to get just a little over-excited", Reserve Bank governor Glenn Stevens suggested last night.

In a talk to the Committee for Economic Development of Australia in Melbourne, Stevens nevertheless hosed down any inference of a dash to implement modern forms of credit controls (that is, macroprudential policy), as some agitators believe may be warranted.

With a caveat that: "the Reserve Bank does not take a doctrinaire view of the correct level of house prices," Stevens said the "endless discussion about whether or not the level of prices constitutes, at any one time, a 'bubble' is not very productive."

Credit outstanding to households is rising at about seven per cent per year. "I see no particular concern with that," he said.

"When we turn to the rate of growth of credit to investors in particular, we see that it has picked up to about ten per cent per annum over the past six months, with investors accounting for almost half of the flow of new credit."

Noting that it was "not clear whether this acceleration will continue or abate," Stevens said it was "not to be assumed that investor activity is problematic."

"A proportion of the investor transactions are financing additions to the stock of dwellings, which is helpful," he said.

"It can also be observed that a bit more of the 'animal spirits' evident in the housing market would be welcome in some other sectors of the economy.

"So we don't just assume that all this is a terrible problem."

But, Stevens warned, "it is surely imprudent not to question the comfortable assumption that it is all entirely benign.

"A situation where prices have already risen considerably in the two largest cities, [with] prices are rising faster than income by a noticeable margin, and an important area of credit growth [that is, for investors] has picked up to double-digit rates should prompt a reasonable observer to ask the question whether some people might be starting to get just a little overexcited."

Such an observer "might want to satisfy themselves that lending standards are being maintained," he said.

" And they might contemplate whether some suitably calibrated and focused action to help ensure sound standards, and that might lean into the price dynamic, may be appropriate.

"That is the background to the much publicised comment that the Bank was working with other agencies to see what more could be done on lending standards."

But he said: "Let's be clear what this is not about. It is not an attempt to restrain construction activity. On the contrary, it is an attempt to stretch out the upswing.

"Nor is it a return to widespread attempts to restrict lending via direct controls. That era, that some of us remember all too well, was one in which the price of credit was simply too low and credit growth too high all round. We don't have that problem at present."

That growth of credit to many borrowers "remains moderate suggests that the overall price of credit is not too low," he said.

"In fact the level of interest rates, although very low, is well warranted on macroeconomic grounds."