Experts Advise Caution as Housing Market Grows

With low mortgage rates and growing prices, the housing market is on the rise. Still, the U.S. economy has yet to truly stabilize, making it hard to guarantee the continuing growth of the real estate sector. Some experts are warning potential buyers to be aware of and prepare for potential shifts in the market.

Reuters discusses several key points made by Stan Humphries of


U.S. Housing Business Looking Up

John Paulson has a solid history investing in the construction industry. Slow but steady increases in the market have pushed Paulson & Co. to support William Lyon Homes, a homebuilding company based in Newport Beach, CA. The company raised $217.5 million with its initial public offering earlier this month.

Despite hitting rough times in previous years, William Lyon’s sales jumped by over a third last year to $76.4 million. Last November, Paulson & Co. invested $30 million in the company. The firm now owns 21% of the stock as well as 10% of the voting power.

The recent investment indicates that Paulson may be shifting his focus back to the housing industry as the market improves. Prices of new homes are on the rise, and have increased by 11% since this time last year. According to the Financial Post, a Brooklyn townhouse on sale for $950,000 attracted over 300 visitors. While many investors and entrepreneurs are placing their bets with homebuilders, others are approaching the market from other angles.

Bill Smead of Smead Capital Management, for example, explained that he bought shares in Home Depot because it sells home construction equipment, and also invested in banks with inventories of foreclosed homes, like Bank of America, Wells Fargo and JP Morgan.

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U.S. Expects Slow Economic Growth in 2013

According to a recent survey, the United States’ economy will continue to grow, but at a slow pace. This is due to low consumer spending and minimal business investment in the region.

Gross domestic product is expected to grow at an annual rate of 2.1% in 2013, according to a forecast from the National Association for Business Economics. Last year, it predicted a 2.2% growth rate.

Nayantara Hensel, spokesperson of the NABE Outlook Survey, said:

“The panelists forecast little improvement in consumption growth, significantly reduced growth in investments in nonresidential structures, equipment and software, and reduced growth in corporate profits and industrial production.”

Still, the labor market has revealed definite improvement; non-farm payrolls are averaging at 165.000 jobs per month next year. So far, 2012 has seen an average of 151,000 new jobs per month.

The U.S. housing market will also continue to grow next year, especially in residential construction and home prices.