The author argues that labor-force modernization by China and India has been a major force keeping inflation low throughout the industrialized world, including America and Western Europe. This, in turn, has been a key factor permitting the world’s central banks and banking systems to keep interest rates low, fueling a worldwide housing boom. The increase in American homeowner wealth has been astounding: $3.2 trillion in the last five years, compared to the increase of $3.7 trillion in all of the 1990s. We are entering a period of general global economic expansion in which interest rates are likely to rise, or at least to stop falling, ending their long secular decline from their peak in 1982. But the shift to even gradually rising interest rates should cool off the intense boom in housing prices and mortgage refinance that has dominated single-family residential markets for several years—and sucked tenants out of apartments. A major across-the-board rollback in housing prices throughout America seems unlikely. The author concludes that if the current general economic expansion lasts long enough, it should stimulate greater space demands for non-residential property. This will help offset the negative impact of rising interest rates on the profitability of such property.
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