Merk Investments: New Homes: August 2008
New home sales for the month of August declined -11.5% to 460K. The inventory of existing stock increased to 10.9 months and the median price of a home fell to $221K. On a regional basis, sales in the Northeast declined to -31.9%, in the South -2.1% and in the West -36.1%. The Midwest saw a net increase in purchasing activity of 7.2%. The total number of new homes on the market currently stands at 408K.
Although the new homes sector represents just above 10% of the total homes available on the market, the data does tend to contradict the improvement seen in the existing home sector, probably due to the availability of distressed homes in the existing stock. The increase in the inventory level exacerbates the problem in the sector even in light of the decline in prices. It is clear that even with additional steps taken by the development community, the incentives to take the risk of purchasing a new home clearly outweigh the benefits at this time.
Given the freezing up of the credit market, we do anticipate that the September and October data will be frightening. The quantity of purchases in August represented a 17 year low and there is little doubt that the declines in the months ahead will exceed that record. Prices will have to adjust in a much more rapid pace, once the situation in the credit markets returns to something approximating normal.
Joseph Brusuelas
Merk Investments
Chief Economist/VP Global Strategy
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