While RBA officials have previously rejected claims of a housing bubble, the comments show it remains concerned about the boom in house prices, especially in Sydney, which has been unleashed by record low interest rates. Decade-old recommendation was that new housing supply promptly sated demand, there need not be a big increase in the price of putting a roof over your head. Credit:Rob Homer The RBA's latest Financial Stability Review reinforced its concerns about speculative buying by investors in the property market, which has continued in the opening months of 2015. In NSW, the RBA said new lending to property investors had surged by almost 150 per cent in the past three years, while investor lending had also grown strongly in Victoria. The central bank reiterated its concern that buying by investors betting on capital gains could "amplify the housing price cycle," increasing the risk of future price falls in some areas.

"Ongoing strong speculative demand would tend to amplify the run-up in housing prices and increase the risk that prices in at least some regions might fall significantly later on," the RBA said. The RBA said new lending to property investors in NSW had surged by almost 150 per cent in the past three years. Credit:Wolter Peeters It did not specify which areas would be at risk of price falls, but highlighted the investor-led price growth in Sydney. It said the main consequences of such a fall would be to dampen economic conditions by prompting many homeowners to cut their spending. "Importantly, a future fall in housing prices would reduce wealth and dampen spending for the broader household sector, particularly for those households with significant housing debt, not just for the investors who contributed to the upswing," it said.

A key reason house prices have surged is the plunge in interest rates – and the RBA cut official rates to a record low of 2.25 per cent last month. With cheap credit also inflating share prices, Mr Gonski, said he was unconvinced the Reserve should cut interest rates again – something financial markets believe is likely. "I have enormous respect for Glenn Stevens and the Reserve Bank board, and I am sure they will get it right. But I am not going to punt which way [they will move], except hoping that they will just think twice before they reduce," Mr Gonski said at an Australian Financial Review lunch in Sydney. Significantly, the RBA's report also said that most households had low levels of financial stress, and it does not believe banks' lending standards have deteriorated. Yet the comments come as the RBA and other financial regulators have put banks on notice not to expand lending to housing investors faster than 10 per cent a year.

The RBA said it was too early to see the results of moves to rein in lending to investors by the Australian Prudential Regulation Authority, but it warned banks to maintain prudent standards and said it would be keeping a close eye on the market. ANZ Bank's co-head of Australian economics Felicity Emmett said it was clear the RBA was concerned about "imbalances" in the housing market, but these were unlikely to stop it reducing interest rates further in the coming months. Outside of residential property, the central bank raised concerns about strong price growth in commercial property, saying there was a growing risk of a "large repricing and associated market dislocation" in the sector. The central bank last month cut official interest rates to a new record low of 2.25 per cent, and it said this move was likely to added some fuel to the property market. Loading

"At the margin, the recent decline in mortgage interest rates can be expected to boost demand for housing further, though it will also make it easier for existing borrowers to service their debts." with James Eyers