Moves by regulators to tighten standards for housing loans are working and have helped ease Australia's overheated property market, the Reserve Bank says.
The central bank has maintained its view that key risks to the country's financial system stem from high levels of household borrowing but said it has seen growth in riskier types of lending ease.
Investor lending has slowed significantly across all states as a result of steps by the Australian Prudential Regulation Authority (APRA) to restrict growth in loans, the RBA said in its half-yearly Financial Stability Review on Friday.
APRA in March told lenders to limit higher risk interest-only loans, which set off a fresh round of rate increases by the major banks.
"In Sydney and Melbourne, housing price growth has slowed and auction clearance rates have fallen," the RBA said.
"A range of factors have contributed to the slowing, including increased housing supply, higher interest rates for some borrowers and an apparent reduction in demand from foreign buyers."
Most indicators of household financial stress remain benign, it said, although there would be concern if households experience large declines in income.
The central bank again highlighted weak conditions in Brisbane's apartment market, where an increase in supply has resulted in falling prices and no growth in rents.
However, there are few signs that buyers are having difficulty completing settlements on purchased properties so far, it said.
The Reserve Bank also noted some concerns about the non-residential commercial property segment, saying activity has been subdued in many markets other than Sydney and vacancies are high, especially in Perth.
It also points out that the tightening of lending standards by major banks could lead to riskier lending migrating to the non-bank sector.
Overall, Australia's financial system remains in a strong position and its resilience to shocks has increased over recent years, the central bank said.