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By Jason Stipp | 03-23-2011 12:14 PM

Foundation Building for Better Housing Market

Though the data is bleak today, 2012-13 could be decent years for real estate, which may ultimately extend the recovery, says Morningstar's Bob Johnson.

Jason Stipp: I'm Jason Stipp for Morningstar. We got some undeniably disappointing housing data this week, but are the numbers as horrible as they seem?

Here with me to dig into the details is Morningstar's Bob Johnson, director of economic analysis.

Thanks for being here, Bob.

Bob Johnson: Great to be here.

Stipp: So the housing data we got this week was pretty dismal. There are not very many ways to put a positive spin on it. Can you just go through what data we got and what it said, and was it a lot worse than people expected?

Johnson: Well, the data was worse than expected. We actually got three pieces of data. We got existing home sales on Monday, and that indicated we were down about 10% in existing home sales.

Then [Tuesday], we got some pricing data that indicated that prices continued to erode at a very modest level, but nevertheless continued to erode last month. And then Wednesday, we got new home sales at yet again another near record low of 250,000 units, so that number has absolutely collapsed.

Stipp: So 250,000, when you put that in a broader context of how many homes are out there, this is a very small number. So similar to the unemployment situation where we're seeing gains that are relatively small numbers over the last year, year and half, you have to remember that there is a law of small numbers at work here to some extent as well, right?

Johnson: Yes, very, very tiny numbers, and numbers that our housing teams says, you know, we're working off a small base and there is a lot of noise in them. We're not so sure those numbers won't be revised a little bit or maybe the weather had an undue impact on the number. I mean, just to show you how that law of some small numbers works, the Northeast quadrant of the country, representing about 55 million people in the last month, there was just barely over a 1,000 new homes sold.

Stipp: So extremely low. It seems like it could hardly be sustainable over a longer period of time.

Johnson: Correct.

Stipp: So on that front, and just talking regionally, we've always spoken about how real estate is a very local business. So, there are other pieces of news that are interesting to take a look at as you're trying to assess the housing situation. Here in Chicago, we also had some new news locally that's sort of interesting to gauge how different parts of the country might be feeling a bit healthier perhaps.

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