Strong balance sheets for households, businesses, financial institutions, and the government going into the pandemic contributed towards maintaining a sound financial system, and yielding a faster economic recovery than following previous deep recessions. However, strong demand for housing has pushed house prices above their sustainable level, increasing the chance of a correction.
Recent buyers are borrowing more relative to their income, and are now vulnerable to higher mortgage rates or a fall in house prices. One of the persistent drivers of higher house prices, and asset values more generally, has been the persistent downward trend in global interest rates, as consumer price inflation has been anchored.