Don't borrow ridiculous amounts of money: RBA Governor's warning to home buyers
Philip Lowe, the RBA Governor, has indicated the central bank's primary concern is employment, and those who don’t have a job and whose wages aren’t growing at sufficiently high rates.
"So to the extent that anything keeps me awake at night, that’s what worries me is the social and economic cost from a protracted period of unemployment.
"We know that low interest rates do push up asset prices, that’s part of the transmission mechanism.
"What would concern me, if we saw on the back of these rising asset prices, lending standards deteriorate and people go into the bank and borrowing ridiculous amounts of money in a speculative boom.
"So this is why our focus is very much on making sure these lending standards remain sound because that would be a big problem if we saw a debt financed speculative boom in asset prices.
"We are not seeing that at the moment.
"The equity market is below its previous peaks, housing prices in Sydney and Melbourne, while they’re rising, they’re not really higher than they got to a little while back in some of the smaller capital cities.
"In regional Australia housing prices are rising quickly, but there are fundamental factors at work here.
"So the issue is if prices are rising, are people borrowing responsibly and carefully?
"And to date they are," Philip Lowe concluded.
Lowe also warned that looser lending standards would increase the upward pressure on house prices and create financial risks.
“We are not at this point, but we are watching carefully,” he said.