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Housing: A Tale of Two Time Periods

The next couple of quarters will be tough, but the longer term is different.

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I'm often asked about my outlook on the housing sector. Lately, my immediate reply has been to ask, "Over what time period?" The reason is that today, more than ever, one needs to delineate between the near term and that which lies beyond several months from now. The outlook is not great for the next couple of quarters, but the longer-term trend can be nowhere but up.

There's no doubt that the housing market is currently suffering a John Daly-sized hangover from the government-induced stimulant that expired in April. The chart below shows the May and June declines in pending home sales are likely to cause a sizable drop in closings over the coming few months. In fact, we wouldn't be surprised to see the seasonally adjusted selling rate, or SAAR, of existing homes fall back into the low- to mid-4 million range from June's 5.37 SAAR at some point this summer.

Eric Landry does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.