The late expansion phase of the business cycle is characterized by high confidence and employment, increases in inflation, rising bond yields, and rising stock prices. Investor nervousness increases risk during this period. The central bank also limits the growth of the money supply.

Deflation reduces the value of investments financed with debt. In the case of real estate, if the property is levered with debt, losses in its value lead to steeper declines in the investors equity position. As a result, investors flee in an attempt to preserve their equity and prices fall further. Bond prices will rise during deflationary periods when inflation and interest rates are declining.