National new-home sales plunged to record low in May

June 23, 2010

Purchases of new homes in the United States fell in May to a record low as a federal tax credit expired, showing the market remains dependent on government support.

Sales collapsed a record 33 percent to an annual pace of 300,000 last month from April, less than the median estimate of economists surveyed by Bloomberg News and the fewest in data going back to 1963, according to a Commerce Department report released Wednesday. Demand in prior months was revised down.

The end of a tax incentive worth as much as $8,000 means the market will now be dependent on gains in employment, which are needed to lift incomes, brace confidence and contain foreclosures. A lack of inflation and concern over jobs and housing are among reasons that Federal Reserve policymakers may reiterate a pledge to keep interest rates near zero.

“Underlying demand for housing absent the government’s tax credit remains disappointingly weak,” Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, said before the report. “The housing market recovery is looking like a mirage.”

Stocks dropped after the report was released, depressed by builder shares.

Sales had been projected to drop 19 percent to a 410,000 annual pace, according to median estimate of 76 economists surveyed by Bloomberg News. Forecasts ranged from 300,000 to 530,000. The government revised April’s purchase rate down to 446,000 from a previously reported 504,000.

The median sales price decreased 9.6 percent from the same month last year, to $200,900, Wednesday’s report showed.

Purchases dropped in all four U.S. regions last month, led by a record 53-percent drop in the West.

The supply of homes at the current sales rate jumped to 8.5 months' worth, from 5.8 months in April. There were 213,000 new houses on the market at the end of May, the fewest since 1970.

A report Tuesday showed sales of previously owned homes unexpectedly fell in May, adding to concern the retrenchment following the end of the tax incentive will be deeper than anticipated. Existing house purchases, calculated when a contract closes, dropped to a 5.66 million annual rate, the National Association of Realtors said.

New-home sales are considered a more timely barometer of the market than purchases of previously owned homes, which account for about 90 percent of the housing market.

Other data show the market is starting to stumble. Housing starts in May declined by the most since March 2009, and building permits—a sign of future construction—fell to a one-year low, data from the Commerce Department showed. The National Association of Home Builders/Wells Fargo confidence index for June fell by the most since November 2008.

The number of mortgage applications filed to purchase houses dropped this month to the lowest level since 1997, according to data from the Mortgage Bankers Association.

Builders are also concerned that the Gulf oil spill and European debt crisis are hurting buyer confidence. Toll, the largest U.S. luxury homebuilder, said deposits have been running 20 percent behind the year-earlier period the past three weeks.

“Concerns about the financial crisis in Europe and escalating regional political tensions, coupled with worries about the oil spill in the Gulf of Mexico and its effects on the economy and the environment have negatively impacted the outlook of American consumers,” Joel H. Rassman, chief financial officer at Horsham, Pennsylvania-based Toll, said in a June 16 statement.


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