New home sales plunge to record lows

September 2, 2010 | 18 Comments

New-home sales in May fell nearly 33% from April. (© David Papazian/Getty Images)

Without the $8,000 tax credit from the federal government, sales of new homes in May fell by 33%. But that was yesterday. Today, the Department of Commerce reports that new home sales in May fell 33% to their lowest levels since the agency started tracking new-homes data 47 years ago.

This sharp decline — which also is the biggest monthly drop on record — follows 2 straight months of increases in new-home sales, which likely got their boost from the $8,000 homebuyer tax credit that required participants to be in contract for a home by the end of April. 

New-home sales are recorded when the contract is signed; in contrast, existing home sales are recorded when the home closes, and those buyers have until June 30 to complete the transaction to qualify. No doubt we’ll also soon be seeing equally dramatic decreases for existing-home sales as we’re now seeing with new-home sales.

The Wall Street Journal warns that the post-tax credit decrease could be even worse than analysts and others have been expecting, noting that despite record-low mortgage interest rates, even demand for refinancing is low.

The answers to those questions could foretell whether housing prices drop just 5%, or if there’s truly a “double-dip” in store, that would mean drops of around 10-15%.

New-homes data for May posted the biggest declines in the West, where sales dropped 53% from April, and also were down 43% from May 2009. Sales also fell both monthly and annually in the South, with decreases of 25% from April and 17% from May 2009.

But the Northeast and the Midwest offered more of a mixed bag. Although new-home sales in the Northeast dropped 33% from April, they rose 12% from May 2009, similar to the 24% decrease from April in the Midwest, while sales rose 6% from year-ago levels.

Nationally, the 28,000 new-home sales in May put the seasonally adjusted annual rate at 300,000, which also is down 18.3% from May 2009, when the annual rate was estimated at 367,000. The median sales price of a new home sold in May also fell to $200,900, from $202,900 in April and $222,300 in May 2009.

Meanwhile, the inventory of new homes on the market rose in May to an 8.4-month supply, likely an aftereffect of builders ratcheting up their supply to meet demand from the homebuyer tax credit. In comparison, April’s 5.8-month supply is much closer to the six-month supply considered normal.

But even if sales still are low, builders aren’t giving up on buyers. Just last week, KB Home announced that it would enter visitors to its Las Vegas-area communities the chance to win four tickets to a sold-out Justin Bieber concert. Earlier this month The Wall Street Journal also wrote about “tax-credit hangover” price cuts from a number of builders.

Source: Listed – A Blog by MSN Real Estate


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