The home-building 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 will not add much to the expansion before the end of 2007, it is 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," said Chris Varvares, president of Macroeconomic Advisers in St. Louis, Missouri. As a result, he said, growth should pick up to an annual rate of more than 3 percent in the second quarter, from 2.25 percent in the current quarter.

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

The yield on the 10-year Treasury note rose to 4.65 percent Friday from 4.42 percent Dec. 4 as strong job growth and rising incomes prompted bond investors to scale back their bets on Fed rate cuts. Meanwhile, shareholders in home-building companies are already taking heart: 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.

"Investors are very forward looking, and there's a sense among them that a change in momentum in the housing market is approaching," said Robert Curran, managing director at the credit rating agency Fitch in New York.

Sales of existing homes rose in October and November, the first consecutive monthly gains since late 2005. New-home sales are up too, helping pare the number of unsold properties to 545,000 from a record 573,000 in July.

Builders still view conditions as poor, according to a December survey by the National Association of Home Builders/Wells Fargo. For the third month in a row, though, the survey showed an increase in the number of builders forecasting higher sales in six months' time.

Toll Brothers, the largest U.S. builder of luxury homes, "may be seeing a floor in some markets," said Robert Toll, the chief executive. Buyer "deposits and traffic, although erratic from week to week, seem to be dancing on the bottom or slightly above." The long-term prospects for the U.S. housing market are more favorable than in other countries that experienced similar housing busts, said Mark Vitner, senior economist at Wachovia.

Housing prices surged this decade in Australia and Britain, peaking earlier than in the United States. Falling prices and sales in those countries proved to be only a temporary drag on economic growth, followed by rapid recovery.

The United States may fare even better, because its younger population and higher rate of immigration create more room to increase rates of home ownership, Vitner said. "Housing recessions didn't bring about the end of the world in those countries, and our demographics are much more favorable," he said.

The industry may take its time getting up off the bottom.

"In the wake of the boom we had and the bust that we're having, it wouldn't surprise me to see a long period of not much growth in housing because that's what it needs to rebalance supply and demand," said Richard Berner, chief U.S. economist at Morgan Stanley in New York.

A revival of home building will not add to gross domestic product at anything like the pace of mid-2005, at the height of the housing boom, when residential construction accounted for more than a third of the economy's 3.3 percent growth rate.

Varvares at Macroeconomic Advisers predicted that home building would contribute just 0.1 percentage point to growth by the fourth quarter of this year. Still, that would be a big improvement from the third quarter of 2006, when housing pulled growth down by 1.2 percentage points to an annual rate of 2 percent.

David Seiders, chief economist at the National Association of Home Builders in Washington, expects the industry to do much better. He sees home building adding as much as 0.7 percentage point to fourth-quarter growth.

Behind the improving outlook: More people are able to afford homes. The rate on a 30-year fixed-rate mortgage has remained less than 6.2 percent since mid-November, down from 6.8 percent in July. Applications for mortgages to buy homes at the end of December were up 8.3 percent from their low for 2006, in October. The median price of existing homes, which account for 85 percent of the housing market, was down 3.1 percent in November from a year earlier, the fourth consecutive monthly decline.