House price-to-earnings ratios are approaching the peak hit just before the global financial crisis, and another year of strong house price growth would send them above that level. But while mortgage payments as a share of income are set to reach 15-year highs, we don’t think they will rise to levels consistent with past house price corrections. The biggest risk is a larger than expected rise in interest rates. If mortgage rates increase to 6% over the next couple of years, a fall in house prices is likely.
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