Economy Ready to Rebound as U.S. Housing Slump Ebbs (Matthew Benjamin and Rich Miller)

Created by : Francis Goodwin View profile

By Matthew Benjamin and Rich Miller

Jan. 8 (Bloomberg) -- The homebuilding industry is about to stop hurting the U.S. economy and later this year may start to help it.

The housing demand that is beginning to stir may be unleashing faster growth. While housing won't add much to the expansion before the end of 2007, it's becoming less of an impediment as price cuts, incentives and lower mortgage rates bring more buyers into the market.

``The worst of the drag on the economy from construction is behind us,'' says Chris Varvares, president of St. Louis-based Macroeconomic Advisers Llc. As a result, he says, growth should pick up to an annual rate of more than 3 percent in the second quarter, from 2-1/4 percent in the current quarter.

That would lessen pressure on the Federal Reserve to reduce interest rates, disappointing bond investors who are anticipating that Fed Chairman Ben S. Bernanke and his colleagues will cut them as soon as May.

The yield on the 10-year Treasury note rose to 4.65 percent on Jan. 5 from 4.42 percent on Dec. 4 as strong job growth and rising incomes prompted bond investors to scale back their bets on Fed rate cuts. An index of housing shares soared 11 percent in the final two months of 2006, outstripping the 2.9 percent advance in the Standard & Poor's 500.