Historically low mortgage rates, along with credit availability, improving economic conditions and low advertised supply levels, have fuelled a solid rebound in housing activity and values. With mortgage rates likely to remain at their record low setting, at least through this year and probably next year, we are expecting to see further upwards pressure on housing prices.  Despite the rapid pace of capital gains since October last year, national housing prices are only 2.8% higher than their previous peak in 2017 and the most unaffordable capitals, Sydney and Melbourne, are still recording dwelling values that are slightly below their record highs.

Although housing demand is expected to remain strong, it is likely the current rapid rate of appreciation will taper as housing affordability constraints become more challenging, fiscal support is removed and first home buyer incentives phase out.

If policy makers see financial stability risks emanating from the housing market, there are mechanisms other than monetary policy that would help to minimise risk and dampen price growth.  Macroprudential levers proved to be effective previously when concerns about investor activity and interest only lending became over-represented in the market.  A new round of credit tightening would probably have the same effect in reducing credit availability in specific areas of risk.