IMF warns of property price increases
The International Monetary Fund (IMF) has weighed into the property debate with a warning that price increases could result in a property bubble.
The IMF said attention should be paid to the risk of a lengthy period of rapid property price growth that could result in “expectations-driven, self-reinforcing demand dynamics and price overshooting”.
It said a sudden drop in house prices would severely impact the Australian economy. Increased borrowing costs or issues affecting household incomes were listed as possible triggers.
The IMF said more regulation in the banking sector would help reduce the impact of a drop in prices.
It said the improved Australian property market was encouraging but activity also needed to improve in the non-mining services and tradable sectors to lead to sustained growth.
The IMF Noted that most households had large mortgage buffers and there was a number of issues that had contributed to low levels of defaults, such as full recourse lending, strong bank capital positions and strong regulation.
However it said authorities should be prepared to take preventative actions if household credit growth, transactions and prices accelerated, as in the early 2000s in Australia where the RBA, Treasury and APRA successfully cooled the housing market.