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By Jason Stipp | 07-21-2011 04:11 PM

Housing Limping Toward Recovery?

With better pricing and new home starts getting a little bit better, there may be more hope for recovery in 2012, says Morningstar's Bob Johnson.

Jason Stipp: I'm Jason Stipp for Morningstar.

We got a boatload of housing data recently. Some of it was good, some of it not so good. It was somewhat of a mixed bag.

Here with me to try to pull some meaning out of it is Morningstar's Bob Johnson. He's our director of economic analysis.

Thanks for joining me, Bob.

Bob Johnson: Great to be here.

Stipp: So, we did get several pieces of housing data. Let's start with some of the good news. We got some data on pricing and it shows that maybe we're seeing a little bit of a recovery there.

Johnson: Yes. I think the good news is we're not going down anymore. Today we got the number out of the Federal Housing Administration, and that's the Fannie Mae mortgages and what they're seeing in their housing stock, what's happened to prices. And we were up on a seasonally adjusted basis 0.4%, and there was a 0.2% increase in the prior months. So, it's the second month in a row where housing prices have increased. Those are on a seasonally adjusted basis. So, that's a good thing to see.

Stipp: We also get housing price data in another report, which is the existing home sales. Did you also see a trend in housing price firming up there as well?

Johnson: Absolutely. The prices there were also up month-to-month. So, it's not just one isolated piece of data that's up. So, the trend appears that the decline has been arrested. I'm not going to declare that home prices are going up in any kind of great way, but they've stopped going down, which is what really scares people.

Stipp: Okay. So, we have seen some stabilization there. On the flipside, though, the existing home sales report was not all good news; in fact, the number of existing homes sold failed to meet a lot expectations. How did you read that number?

Johnson: Existing home sales were only about 4.8 million units, and people thought they might be a little higher, and it was actually a decline from the prior month. That was only about 1% sequential decline, but it was a decline. The news there was there was a lot of cancellations, which figure into the calculation--you get new sales signed, and then you've got ones that didn't happen because there was cancellation somewhere along the pipeline.

Stipp: So, what's the normal amount of cancellations, and what were we seeing here, and what do you think might be behind that?

Johnson: 10% what might be a normal rate of people that back out of a contract for one reason or another. This month the number was 16%.

Stipp: So, quite a bit more.

Johnson: Even in a couple of the more recent months, they've been less than 10%. So, the jump really affected the number this time around.

So, that was a big deal, and it can be because appraisals don't come through, it can be because people get cold feet, it can be because it doesn't pass the housing inspection--any number of things can happen where it kind of shows up in the pipeline.

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