Housing Boost Shifts Focus to Big Ticket Items Like Autos

More construction, rising home prices, and low interest rates all bode well for auto sales.

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In addition to juicing the prospects for the broader economy, the revitalized housing market also has the potential to jumpstart auto sales, experts say.

Economists expect home sales and new construction to pick up in 2013 as pent-up demand for housing continues to filter in the market. Low mortgage rates will also spur more buyers into taking the home ownership plunge.

More demand for housing fuels more construction and that potentially means more pick-up truck sales, according to Lacey Plache, chief economist at car information website Edmunds.com. With the average age of the nation's fleet of trucks at a record-high 10.4 years—the useful life of a truck is about 15.5 years, according to Plache--there's bound to be a whole new crop of prospective buyers as workers who put off purchasing a new vehicle during tough economic times consider replacing their old model.

"There's a strong correlation between housing construction and truck sales," Plache says. "Once people start building again—just as with everything else—they see more business, they buy new trucks."

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Rising home prices—which are expected to continue gaining in 2013—could also give auto sales a boost. Although home prices nationally are still about 30 percent off their 2006 peaks, as real estate values recover and people start building equity again, they'll feel wealthier. And when people feel wealthier, they feel more confident about making larger purchases such as an automobile, Plache says.

"Once people accrue equity, they can fund spending," Plache adds. "We're still pretty far away before they can probably tap into that, but pre-recession [home equity] was a big source of spending, including on cars."

The recent refinancing wave thanks to rock-bottom interest rates can also make homeowners feel a bit wealthier, primarily because they potentially stand to save substantially on their monthly mortgage payments.

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According to government mortgage giant Freddie Mac, borrowers averaged a 1.7 percentage-point interest rate reduction on a $200,000 loan in the 3rd quarter of 2012 (the most recent data available), the largest percent reduction recorded in the 27 years of analysis.

While those savings might not completely cover a new car note, it still makes people feel like they have more money to spend, Plache says.

Economists expect slower growth in 2013, but total auto sales should still eclipse 15 million according to most estimates. Pent-up demand for vehicles, coupled with looser credit and low interest rates points to continued strength for the auto industry. Further improvement in housing will also continue to spur those sales, Plache says, but uncertainty around future financial policy could throw a wrench into the projections.

"[Politics in Washington] is the biggest risk to auto sales," Plache says. "If policy goes in the wrong direction, we could see a much different picture this year."

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  • Meg Handley is a reporter for U.S. News & World Report. You can reach her at mhandley@usnews.com and follow her on Twitter at @mmhandley.