"It does worry me that the very, very low - historically low - levels of interest rates are encouraging people to perhaps overinvest in housing," Fraser said.
The Reserve Bank of Australia cut its cash rate target to a record 2 per cent in May while lending to investors is near a record high. The proportion of home lending to speculators rose to 40.8 per cent in March, just shy of the 40.9 per cent record in December, according to government statistics.
The measures taken by the Australian Prudential Regulation Authority on mortgage lending are starting to have a modest effect, RBA deputy governor Philip Lowe said last week in answer to a question after a speech in Sydney.
Fraser said he did not see the house price gains as a major risk. "We do a lot of consultations with the banks, the four major banks, and we recently had in the regional banks, and they're very much alive to the issues and they've taken their own internal measures, as they should, to make sure their exposure is manageable," he told the committee.
House price moves have been more modest elsewhere in Australia, having increased 9 per cent on average across the country's eight state and territory capital cities from a year earlier.
The price gains have spurred a pick-up in dwelling investment with building approvals having risen 16.3 per cent in April from a year earlier, data yesterday showed.
Oz home approvals in big fall
Australian approvals for new homes have suffered their largest fall in seven months due to a sharp slide in go-aheads for apartment blocks.
Approvals for the construction of new homes fell 4.4 per cent in April, much worse than market expectations, but were up 16.6 per cent for the 12 months to April.
Approvals for private sector houses rose 4.7 per cent in the month, while "other dwellings", including apartment blocks and townhouses, dropped 15 per cent, the Australian Bureau of Statistics said.
That fall highlights the volatility of the apartment building sector, Commsec economist Savanth Sebastian said. He expects one or two months of weakness before the sector bounces back.
"I don't think there's anything significant in the result, the Reserve Bank will be comfortable there's plenty of building work being done," Sebastian said.
Tighter lending restrictions may also have been a small drag on building approvals, he added.
"Banks are certainly being more responsible in terms of their lending policies, and I think that's showing up in the house price data as well," Sebastian said.
Capital city home prices dipped in May for the first time in six months, with drops recorded everywhere except Darwin and Canberra, the latest CoreLogic RP Data home value index shows.
JP Morgan economist Tom Kennedy said a fall in approvals for high rise apartment buildings was to be expected. "That has been very hot recently and was tracking at unsustainable levels, so the fact that we saw some payback today shouldn't be a surprise," he said.
"Even though today's number is quite volatile, the underlying trend is quite encouraging."
The data also showed a 5 per cent rise in homes approved for a single family, which is a positive given the housing market has been dominated by dwellings being bought by investors in the past year, Kennedy said.
"Typically, that sector is a lot more representative of what's going on in the broader housing market," he said.
- Bloomberg, AAP
