Housing bubble will force RBA to raise rates

The Reserve Bank of Australia (RBA) governor Glenn Stevens has said he will not hesitate to raise interest rates if he sees a bubble forming in house prices.

In his address to the House Economics Committee on Friday, Mr Stevens said the RBA would raise rates if it saw that a bubble fuelled by debt was threatening financial stability.

Mr Stevens said he is wary of the risks to financial stability caused from a surge in asset prices.

According to official data from the Australian Bureau of Statistics, house prices are still about 1.4 per cent below their peak a year ago, but recovered strongly in the June quarter, increasing by 4.2 per cent.