Merk Economics Release-New Home Sales: July 2008

Housing sales data in the guise of the new home sales, the Case-Shiller index and the OFHEO estimate of price action in the housing sector all indicated that conditions continue to moderate. New home sales for July rose 2.4% m/m to 515K units sold. Inventories actually fell to 10.1 months and the media price of a home declined -6.3% y/y. On a regional basis sales activity increased in the Northeast and West, but declined in the Midwest and South.

The difference between the Case-Shiller index and the OFHEO estimate of changing real estate prices continued in July. The Case-Shiller index implied that the prices in 20 major metro areas fell -15.9%, where as the OFHEO study suggested a much slower rate of depreciation at 1.4% on a seasonally adjusted basis for the quarter. On a monthly basis the OFHEO estimated suggested that price action was flat during the May-June sampling period.

The data for July confirms that the improvement at the micro level suggest that some areas of the country may have stabilized, but not enough to mask the macro reality. The double-digit year over year declines throughout the major real estate markets as illustrated by the Case-Shiller index in the Far West, Florida and the Southwest absolutely overwhelm the ninety-day improvement in Dallas, Charlotte and Atlanta.

New home sales have picked up midyear, as one would normally expect during the summer months. Yet, we think that the investing class may be making a bit too much out of the slight improvement in the data. Inventories remain far too high for even a -6.3% year over year adjustment in prices to clear the market. Moreover, the uncertainties regarding the prospects for Fannie and Freddie may provide another disruption to a mortgage market that cannot yet function properly without the twin government sponsored giants. The housing market will turn around one day. But that day is not today and the market will not observe it until prices fall another ten percent and the large outstanding question of the twin GSE’s is settled. Until then, this is all but prologue.

This report was prepared by Merk Investments LLC, and reflects the current opinion of the author. It is based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any investment product, nor provide investment advice. Merk Investments does not own any of the stocks mentioned; this is not an offer to buy or sell any security mentioned.

Merk Investments: New Home Sales: July 2008