Sales of newly built U.S. homes collapsed in May, falling to a record low and stirring concerns among some economists that the housing market would stumble again now that a popular federal tax credit for buyers has expired.
The Commerce Department said Wednesday that new homes sold at a seasonally adjusted annual rate of 300,000 units in May, a record 32.7% drop from the revised April estimate and 18.3% below the May 2009 figure. It was the lowest sales pace since the government began collecting such data in 1963.
Despite the lowest mortgage interest rates in 60 years, sales fell across all regions and were down by more than half in the West.
Many economists were expecting sales of both new and resale homes to falter in coming months as the effects of the federal tax credit waned and potential buyers remained concerned about possible layoffs in a slow job market. But the May drop was significantly larger than most experts had anticipated.
"No two ways about it, these figures were just awful, when you look at the magnitude of the decline," said Michael D. Larson, a housing and interest rate analyst for Weiss Research. "Obviously we were all expecting some kind of hangover impact, but this is like what you would have on New Year's Day."
The pessimistic read on new-home sales came as a survey released Wednesday by the Mortgage Bankers Assn. found that applications for home purchases and refinancings fell again last week, marking the sixth decline in the last seven weeks. Taken together, the reports indicate the housing market is weakening despite rock-bottom interest rates.
"The big thing is this is happening while mortgage rates have fallen to historical lows," Irvine economist John Burns said. "If there was ever a time to buy a home, you know now is the time."
While new-home sales make up a much smaller share of the housing market than do sales of previously owned properties, analysts watch them closely to get a read on consumer sentiment and job creation, particularly in the construction industry.
The new-home sales figures also give an indication as to where the broader market might be headed in coming months, as new-home sales are recorded when a buyer signs a purchase contract — as opposed to sales of previously owned homes, which are measured when deals close.
The federal tax credit required buyers to enter into a home purchase contract by April 30 and close deals by June 30. The credit offered as much as $8,000 to first-time buyers and $6,500 for some current homeowners.
"Today's numbers certainly reinforce the idea that housing is weak outside of government support," said Dan Greenhaus, chief economic strategist for Miller Tabak & Co. in New York. "The question always has been and remains, how quickly will we appreciate, how quickly are sales going to grow without government support? And the answer is, they are likely to be somewhat muted."
Sales of previously owned homes fell 2.2% in May when compared with April, the National Assn. of Realtors reported Tuesday.
The median sale price of new houses sold last month was $200,900, a 1% increase from the previous month but a nearly 10% decline from the year-earlier median. The Commerce Department estimated that 213,000 new houses were for sale at the end of May, representing a supply of 8 1/2 months at the current pace.
"We are likely to see renewed decline in prices," said Dean Baker, co-director of the Center for Economic and Policy Research in Washington. "The people who think prices have stabilized, I don't really see the basis for that."
Not all the news was bad. For the first time in two years, fewer homeowners are missing mortgage payments, Treasury Department regulators reported Wednesday.
Three years have passed since the mortgage debacle made most subprime and nontraditional loans unavailable, and the bulk of loans since have been "plain vanilla" fixed-rate mortgages to prime-credit borrowers. The better-performing newer loans stand in contrast to the dicey old ones that finally are being flushed away for good.
The regulators' first-quarter report on mortgages serviced by large national banks and thrifts said delinquency rates dropped in all categories, including the most default-prone subprime and alt-A loans. (Alt-A borrowers had decent credit scores but added risk factors; an alt-A borrower might have paid interest only at a fixed rate for the first five years with limited documentation of income and assets.)
According to the Comptroller of the Currency and the Office of Thrift Supervision, the percentage of mortgages that were current and performing increased for the first time since the agencies began publishing the report in June 2008. Delinquencies fell in all categories, from a single missed payment to 90 or more days of delinquency.