By Wayne Cole

SYDNEY (Reuters) – Australia’s booming housing market is leading to a build up of consumer debt that could become a risk to financial stability, a top central banker cautioned on Wednesday, while also noting the strength was positive for the economy overall.

Michelle Bullock (RBA Assistant Governor) spoke about housing. In her speech, Bullock stated that the regulators closely monitor bank lending standards and how households are able to repay their loans when credit growth exceeds income growth.

Bullock heads the RBA’s financial system division. She said that a high debt level could present risks for the economy in the case of an income shock or sharp fall in housing prices.

We are constantly evaluating whether or not macro-prudential instruments should be considered to mitigate these risks.

To curb borrowing and especially interest-only loans, regulators tightened lending regulations in 2014.

Bullock stated that the risk was posed by highly indebted borrowers. Therefore, the tools should be focused on debt serviceability as well as limits on the amount of loans.

Bullock noted that the level of investor activity in the current housing market is not as high today than it was when APRA introduced a benchmark for investor lending in 2014.

Bullock dismissed concerns over the overall health of Australia’s banking system, noting that banks are well capitalised and lending standards have not been compromised.

Housing boom has also contributed to the recovery of the economy.

Bullock stated that the strength of the housing market was a positive indicator for the economy and a key channel for monetary support to the economy via home improvement, housing construction and household item purchases.

With record low interest rates, and strong demand to rent suitable homes from home, the property market has enjoyed a hot year.

CoreLogic data showed that home prices rose by more than 18% between August and the previous year, which is the highest rate since mid-1989.

According to the national statistician, the value of Australia’s 10,7 million homes rose to A$8.9 Trillion in June quarter. This is a record A$596 Billion ($430.96 Billions).

Although the boom has provided wealth to homeowners, it also has pushed many first-time buyers out of reach and caused concerns over affordability.

The housing boom was built upon a mountainof debt, with home loan applications soaring to new heights during the first half.

($1 = 1.3839 Australian dollars)