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Higher interest rates won’t trigger housing meltdown

While higher interest rates will make owner-occupied housing less affordable, the Bank of Japan will only tighten policy gradually so detached house prices will probably hold up well. By contrast, there’s a risk of a sizeable correction in apartment prices if subdued productivity growth keeps a lid on wage growth, limiting any pick-up in rental growth. But if the AI revolution delivers stronger productivity, wage and rental growth as we anticipate, apartment prices are only marginally overvalued.

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