Newspaper article The Christian Science Monitor

A Sector That's Raising the Roof

Newspaper article The Christian Science Monitor

A Sector That's Raising the Roof

Article excerpt

For investors, there may be gold in nails, two-by-fours, and paperboard.

Not literally, of course.

But the US home-building industry is poised for a second strong year in a row, following an ebullient housing and home-building market in 2001.

"If employment comes back, along with a stronger economy, there could be a very healthy pace of new home building and sales in 2002," says John Lonski, chief economist at Moody's Investors Service, in New York.

Over the past few years, many investors battered in the stock market moved their money into real estate. In 2001, housing sales reached a record 5.25 million units, up some 2.7 percent from the prior year. New-home sales reached 906,000 units in 2001, another record.

Repeating last year's barnstorming gains seems unlikely. But strong housing starts from January and February of this year, in part attributed to unusually warm weather in many parts of the US, as well as to low mortgage rates, bode well for the industry.

"The one near-term danger," says Mr. Lonski, is that yields on US Treasury bonds might suddenly rise, which could push up mortgage rates. Thirty-year rates on home mortgages currently hover in the 6.5 percent to 7 percent range.

Still, most economists are upbeat as home values in many parts of the US continue to rise, reflecting a demand for new and existing homes.

That "wealth effect" allows existing homeowners to consider trading up to more expensive homes. In doing so, they create a larger market of vacant "starter" homes to enable first-time buyers to step through a new doorway of their choice.

"I'm cautiously bullish about the [housing/home construction] sector," says Mike Jaffe, who tracks the sector for Standard & Poor's Corp., in New York.

"Mortgage rates will probably go up a little, but as long as they are relatively accommodating, the home-building sector should do well this year, Mr. Jaffe says.

"The economy is not going to take off like a rocket," he adds, "so that will help keep mortgage rates down and home buyers busy."

Experts point out that ancillary industries, from lumber and paperboard companies to home-improvement suppliers, such as Home Depot and Lowe's, could ride the coattails of a continued building boom. …

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