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By Jason Stipp and Robert Johnson, CFA | 07-24-2013 12:00 PM

Housing: Long Term Strong, Short Term Sloppy

The housing market has plenty of runway, but several headwinds will hold it back in the near term, says Morningstar's Bob Johnson.

Jason Stipp: I'm Jason Stipp for Morningstar.

The long-term housing story is still intact, but the short-term is looking messy. Here to explain is Morningstar's Bob Johnson, our director of economic analysis.

Thanks for joining me, Bob.

Bob Johnson: Great to be here.

Stipp: The long-term housing story, the positive news, is still intact. Why do you say that? We've seen some uneven data recently.

Johnson: The reason that the long-term picture still looks so wonderful is that housing as a percentage of gross domestic product has historically run about 5% of GDP, and right now it's running about 2.5% of GDP. It got as low as 2%, so we've come back a little bit already, but we've still got a lot of runway in front of us.

I think the [demand] market is also still very much intact. People of a certain age generally buy homes, and we've underinvested in homes over the last bit of time. And we need starts to be somewhere--we can argue whether it's 1.1 million or 1.5 million--but somewhere in that range is the normalized rate of housing starts that we need to meet normal demand. ...

So, I think we've got a lot of runway on both of those fronts right now, with housing starts at around 900,000+ in the first half compared to that 1.3 million average that I would expect as a normal demand. So, I think we've still got some upside from there, and on the GDP calculation as well.

Stipp: That said, you've identified some factors that are essentially keeping a leash on that long-term picture and holding us back a little bit. What's causing some trouble here in the short term?

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