Risks in the housing market remain high despite a crackdown on lending standards which has made the banking system safer, the Reserve Bank says.
"The risks surrounding housing and mortgage markets seem higher than average at present," the Reserve Bank said in its bi-annual Financial Stability Review.
"These risks do appear to be comfortably manageable at this stage, but they underscore the need to maintain sound lending standards."
Measures introduced by the Australian Prudential Regulation Authority (APRA) have slowed investor demand for housing, the bank said, but it still remains at an elevated level.
Investor activity has been a major factor in soaring home prices in the nation's two largest cities.
Regulators have found some lending standards had actually been looser than first thought, increasing the risks of a downturn in the residential market, the RBA said.
"As a result, some borrowers have had less of a safety margin against unexpected falls in income, increases in expenses or increases in interest rates," the bank said.
The RBA added that the level of investor activity was also higher over recent years than originally thought.
But there have been tentative indications of some slowing in the red hot Sydney and Melbourne housing markets recently, it said.
"Auction clearance rates have fallen and price growth has eased in Sydney of late," the bank said.
Owner-occupiers are also reportedly flocking back into the property market.
The value of loans approved for owner-occupied housing jumped 6.1 per cent in August, while approvals for housing investment slumped 0.4 per cent, the third fall in the past four months.
And there's still strong price competition for lower-risk owner-occupier borrowers, despite the forthcoming increase in mortgage rates announced by Westpac, the bank noted.
Despite the cooling impact macroprudential measures appear to be having on the housing market, Commonwealth Bank of Australia economist Gareth Aird says the RBA won't be in a hurry to cut interest rates further from already record lows of two per cent.
"We very much doubt that the RBA would want to provide further stimulus to the housing market just when it looks like some heat was coming out of things, as had been desired," he said.
"We see the RBA leaving rates on hold on Melbourne Cup day."
While the housing market remains a long way from oversupply nationwide, some areas and apartment markets appear to be reaching that point, the RBA said.
"Particularly the inner-city areas of Melbourne and Brisbane," it said.
Risks are also rising in the commercial property sector, with prices rising much faster than rents and overbuilding also evident in the Perth and Brisbane office markets, the RBA said.
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