Home prices may bottom in 2010: Pimco

By Walden Siew

NEWPORT BEACH, California (Reuters) - A senior manager at the world's biggest bond fund criticized a federal mortgage rescue plan as short-sighted and said U.S. home prices may not hit bottom until 2010.

U.S. home prices may fall as much as 30 percent from the market's peak and likely won't trough until 2009 to 2010, according to Mark Kiesel, a portfolio manager at Pacific Investment Management Co.

"The question is, do we do it (real estate market adjustment) over a period of two to three years, or do we do it in 10?" Kiesel said in an interview, referring to an adjustment in U.S. property prices. "Japan chose 10, and that didn't work so well."

The fallout from excesses in Japan's real estate market in the 1980s lasted through the 1990s and even arguably until today.

Pimco, a unit of Munich-based insurer Allianze SE, managed $721 billion in assets through the end of September.

Kiesel, a longtime bear on the U.S. housing market, also questioned merits of a plan that President George W. Bush is expected to unveil on Thursday to help struggling American homeowners avoid foreclosure.

"This reeks of moral hazard," Kiesel said. "This is pure politics as we enter an election year, and it's not going to help the problem. It's going to prolong the bubble."

Kiesel said government interference in the free market may do more harm than good.