Housing a sweet spot for economic rebound

, Bloomberg

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At Lambert Ranch, an Irvine, California, housing development where prices start at $1 million, just two of 98 homes are unsold since the project opened in May.

The builder, New Home Co., is opening 14 neighborhoods in California this year for buyers who want to seize on low interest rates amid a scarce supply of homes for sale.

"Everywhere we are, we can see it," Larry Webb, chief executive officer of Aliso Viejo, California-based New Home, said in a telephone interview. "Talk about pent-up demand."

U.S. home sales and prices are poised to rise in 2013, solidifying a recovery that began last year after a half-decade slump that was the deepest since the Great Depression, according to analysts and economists surveyed by Bloomberg. Record-low mortgage rates and attractive prices, supported by declining unemployment, are luring buyers as the inventory of distressed homes shrinks. Home-builders are responding by adding supply, bolstering economic growth.

"Increased new residential construction activity will lead to employment gains, which should translate into higher consumption and modest GDP growth," Robert Wetenhall, a home-building analyst with RBC Capital Markets LLC in New York, said in a telephone interview. The U.S. budget deal reached this week removes a cloud to that outlook, he said.

Sales of existing homes will rise about 7.2 percent in 2013 to 4.98 million, the highest since 2007, based on the median estimates of 15 economists and housing analysts surveyed by Bloomberg News for this story. Prices will gain 3.3 percent after an estimated 4.5 percent jump in 2012, according to the forecasters, who used varying measures of values.

Building is set to jump after the inventory of new homes fell last year to the lowest level in half a century. Housing starts, including single- and multifamily units, are expected to increase 24 percent to 967,000 in 2013, the most since 2007, according to the median of 17 estimates. Purchases of new single-family houses will climb 23 percent to 448,000, extending last year's rebound from a record low 306,000 in 2011.

"We expect housing to continue this momentum into 2013 and in fact show stronger growth rates due to pent-up demand," Mark Kiesel, managing director at Pacific Investment Management Co. in Newport Beach, California, wrote in an e-mail.

Buying Home

Kiesel, who predicted the home-price bubble would burst in 2006, is betting on an extended housing recovery with his investors' money and his own. In May, six years after selling his last house near the real estate peak, Kiesel bought a Newport Beach home in a sign of his conviction that prices had bottomed. The Pimco Investment Grade Corporate Bond fund outperformed the broader Barclays US Credit index in 2012 because of its housing-related investments, he said.

"Residential investments potentially could grow between 20 percent and 30 percent" in 2013, adding as much as 0.75 percent to U.S. gross domestic product growth, he said.

The U.S. economy expanded at an annual pace of 3.1 percent in the third quarter, the Commerce Department said Dec. 20. Residential fixed investment climbed almost 14 percent from a year earlier to $370.9 billion, its highest level since the end of 2008. Gross domestic product will increase 2 percent this year, based on the median of 85 estimates in a Bloomberg survey.

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