WASHINGTON — Americans showed far less appetite to buy new homes last month after the government stopped offering a home buyer tax credit. The news signaled a renewed housing slump that threatens the broader economy.
Sales of new homes fell in May to their lowest level on record, plunging 33 percent from the month before. The bleak data followed a report earlier this week that sales of existing homes dipped, too.
The Federal Reserve repeated its pledge to hold interest rates at record lows to fuel economic growth. That has helped keep mortgage rates down, but even ultra-low rates couldn’t overcome the chilling effect on new-home sales caused by the end of the tax credits.
The government offered up to $8,000. To qualify, buyers had to sign a contract by April 30.
“We all knew there would be a housing hangover from the expiration of the tax credit,’’ wrote Mike Larson, real estate and interest rate analyst at Weiss Research. “But this decline takes your breath away.’’
High unemployment and slow job growth are weighing on the housing market as well. Fed chairman Ben Bernanke has expressed confidence that the nation won’t fall back into a “double dip’’ recession. At the same time, the recovery remains vulnerable, and one of the chief threats is the real estate market.
New-home sales for May came in at a seasonally adjusted annual pace of 300,000, the Commerce Department said yesterday. That was the slowest in the 47 years records have been kept. And it was the largest monthly drop on record. Sales have now sunk 78 percent from their peak five years ago.
The broader economy is feeling the impact. The drop in new-home sales means fewer jobs in the construction industry, which normally powers economic recoveries. This time, construction has remained lackluster.
The discouraging report on housing “really speaks to the sustainability of the economy without stimulus’’ from the government, said Wells Fargo Securities economist Anika Khan. “We are still very much in the nascent stages of the recovery.’’
Buyers who signed sales contracts by the April 30 deadline have until June 30 to close on their buys and qualify for the tax credit. Because the new-home sales report measures contracts to buy homes, it offers a glimpse of what the housing industry will endure throughout the summer.
Home buyers’ sentiment has shifted over the past year as prices have stabilized, said Rick Porter, president of Atlanta builder Richport Properties. “They have determined that there’s good value in housing right now,’’ he said. But he added that potential buyers are still concerned about their finances and are being cautious about making a major decision.
By Alan Zibel Associated Press June 24, 2010