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Expect 10 percent growth in housing: Pimco CIO

The housing industry will grow 10 percent over the next two to three years despite the anticipated rise in mortgage rates, Pimco's Mark Kiesel predicted Monday.

That increase will come, in part, from pent-up demand from millennials, he told CNBC's "Power Lunch." Kiesel pointed out that 700,000 jobs were added in the 25- to 34-year-old range and that 30 percent of 18- to 24-year-olds are currently living with their parents.

Plus, inventories are at 15-year lows and household formations are picking up, he noted.

"You've added 1.5 million in household formations over the last year. That's now starting to see a significant recovery," said Kiesel, Pimco's chief investment officer of global credit.

Another positive sign for housing is the pickup in credit, which has been evidenced in corporate earnings reports, he said. That means previous homeowners may return to the market.

"You literally have 5 million people who lost their homes in the prior recession. Over the next five years they could potentially come back and buy houses again."

And while some may fear a negative impact from the ultimate rise in mortgage rates once the Federal Reserve begins to hike interest rates, Kiesel isn't concerned. That's because when the central bank normalizes rates, it will be at the front end of the curve, or short-term rates, he said.

He anticipates the 30-year mortgage rate will only go "a little bit higher."

"The reality is the job growth and the pent-up demand for housing more than offsets a modest rise in longer-term rates," he noted.

Kiesel would stay invested in title insurance, homebuilders, building materials companies and home improvement.

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