Hi Jesper, thank you for this insightful article. You wisely point out the risk to home affordability that will emerge if mortgage rates rise without a corresponding increase in wages, particularly given the predominance of variable rate mortgages. Do these arguments also point to a potential catch-22 scenario that the BOJ could find itself in if real estate prices continue to rise at current interest rates (absent of wage improvement)? If real estate prices continue to rise that will also negatively impact affordability and increase the pain of eventually raising rates. The BOJ will need to choose between the risk to affordability from unchecked prices vs. higher mortgage rates. I suppose the hope is that, if they find themselves in this scenario, they could thread the needle with a modest increase to rates that has a disproportionate cooling effect while buying more time for wages to rise. Is this the right way to think about the challenge that could arise if real estate prices continue their upward trajectory? Do you see this “doomed if you, doomed if you don’t” risk as a material concern?
Hi Jesper, thank you for this insightful article. You wisely point out the risk to home affordability that will emerge if mortgage rates rise without a corresponding increase in wages, particularly given the predominance of variable rate mortgages. Do these arguments also point to a potential catch-22 scenario that the BOJ could find itself in if real estate prices continue to rise at current interest rates (absent of wage improvement)? If real estate prices continue to rise that will also negatively impact affordability and increase the pain of eventually raising rates. The BOJ will need to choose between the risk to affordability from unchecked prices vs. higher mortgage rates. I suppose the hope is that, if they find themselves in this scenario, they could thread the needle with a modest increase to rates that has a disproportionate cooling effect while buying more time for wages to rise. Is this the right way to think about the challenge that could arise if real estate prices continue their upward trajectory? Do you see this “doomed if you, doomed if you don’t” risk as a material concern?
Tycho sums it up quite nicely for those of us less endowed in brilliant economic speak. I always read however and attempt to gain insight. Thank you.