If apartment prices fall, lenders typically reduce the credit they will extend to borrowers, forcing them to stump up more to meet the shortfall when they settle on their purchases. If they cannot find the extra money and the settlement fails, the buyer walks away from the purchase and loses his or her deposit.

But as it repeated its view that housing market risks had largely passed, the Reserve Bank also questioned recent price growth figures from provider CoreLogic, calling them "overstated".

While CoreLogic said Sydney home prices rose 6.8 per cent in the three months to June, the RBA cited figures from APM – owned by Fairfax Media, publisher of AFR Weekend – showing prices flatlined over the quarter as well as figures by Residex, a separate service owned by CoreLogic, showing they fell 0.1 per cent over the same time.

"Recent information suggests that the strong increases reported by CoreLogic were overstated as a result of methodological changes affecting growth rates for the June quarter," the RBA said.

How the RBA sees it - house price growth in June. RBA Monetary Policy Statement

"The most recent data suggest that housing prices declined in most capital cities in July.

In July, CoreLogic reported 1.3 per cent growth in Sydney and 1.1 per cent growth in house prices in Melbourne.

CoreLogic was contacted for comment but did not respond by deadline.


The RBA's comments on settlement risk echo a warning it made in April about completions of new apartments pulling prices and rents lower.

How CoreLogic saw it - home values in June. CoreLogic

Settlement failures are already on the rise. In June as many as 5 per cent of the 800 apartment contracts law firm Maddocks processed in Melbourne failed to settle, up from a historical average of 3 per cent.

Tighter lending criteria by banks – particularly credit for overseas buyers of new property – is forcing many foreign purchasers to scramble to find alternative sources of finance to settle their purchases.

While the housing market in resource-dependent Perth and Darwin was already suffering a high vacancy rate and lower rents, the growing supply of apartments has so far had a minor effect on the eastern-state capitals, the RBA said.

"Despite the substantial increase in supply in recent years, vacancy rates in Sydney, Melbourne and Brisbane have only risen a little, to be around their long-run average levels," it said.

"That said, rent inflation in these cities has been declining, and has also been a little weaker than suggested by its historical relationship with the vacancy rate."

The growth in dwellings was not only being driven by population growth, but by the decreasing average size of households, which shrank from an average 4.5 people per household in 1911 to 2.5 by 2001, the RBA said.