The Governor of the Reserve Bank Glenn Stevens has hardened his rhetoric, warning of a bubble in Sydney property and saying it is hard to escape the conclusion that Sydney house prices "look rather exuberant".

But he said "a balance has to be found" between the housing market and the rest of the economy and the Reserve Bank board cannot allow Sydney's property boom to dominate its consideration of the "real economy".

Speaking in New York overnight, Mr Stevens also warned the Abbott government had "little choice" but to accept a slower return to surplus in coming years, saying a huge fall in Australia's terms of trade has hit state and federal government revenues hard.