Reserve Bank governor Glenn Stevens has issued a warning to Sydney home buyers: prices don't always rise, they can fall, too. But he also says Australians should not think it is a bad thing foreign investors have been buying local homes in increasing numbers.
Mr Stevens told a House of Representatives committee on Friday that Sydney home buyers needed to be mindful of the vagaries of the housing market. It follows a year of rapid house price growth and concerns that a generation of potential home owners may be locked out of the market.
He said the Reserve received new data recently showing Australians have been rushing to build new homes. In the past three months - with interest rates at record lows - there have been almost 50,000 new dwelling approvals across the country, the highest number since 1983.
''People need to keep in mind that prices don't just rise, they can fall, they have fallen and we need to be careful that we don't take on too much leverage,'' Mr Stevens said.
But he also said it was not a bad thing that foreigners have increasingly been buying Australian homes, which has been helping to push up prices.
''In particular parts of our cities, the role of foreign investors is quite prominent indeed, but I suspect rather less prominent than some of the headlines might suggest,'' he said. Economists have increasingly been pointing to Australia's record low interest rates and the recent pick-up in consumer spending as evidence the Reserve's monetary policy was boosting economic activity.
Bureau of Statistics figures this week showed retail sales have grown 6.2 per cent through the year to January, the best result in more than three years. It also comes as better than expected economic growth figures were released this week, showing the economy growing at an annual rate of 2.8 per cent.
Mr Stevens said on Friday that few businesses were having trouble accessing credit. He also said that while present levels of household debt were not ''disastrous'' he would be worried about an acceleration in credit growth to home buyers.
''[Household debt is] pretty high now and we'd, surely, be asking for trouble if we saw a big step up from where we are.''
Economists said Mr Stevens' comments were the clearest statement yet that the economy is lifting.
''The clear sense from today's testimony … is that Reserve Bank officials are extremely comfortable with current settings,'' Commonwealth Bank economist Craig James said.
''The focus is now on ensuring that the inflation is contained, households don't over-borrow and, more importantly, that growth is manageable.''