Saturday, June 26, 2010

After tax credit expires, new home sales fall to record low in May

New home sales fell to a record low as outlined by a report that was done by the Commerce Department released June 23. A slide in new home sales statistics was expected after the home buyer tax credit expired in April. But the 32.7 percent drop in May was a lot more than expected. Existing home sales also dropped, as forecasters expected them to rise. Unemployment seems to be the primary reason the housing market is flagging without the tax credit. Sharp declines in the housing market are threatening the fitful U.S. economic recovery.

Resource for this article: New home sales fall to record low in May after tax credit expires

A new low – new home sales

New home sales had surged in March and April as homebuyers hurried to purchase homes before the April 30 deadline for the tax credit. Homebuyers have until June 30 to close the deals for the home tax credit, but the Senate may vote to push that deadline back to Sept. 30. reports that the May decline of 32.7 percent is there to represent a drop to 300,000 homes from 446,000 in April. Sales year-over-year fell 18.3 percent. The Commerce Department explained the May figures are the slowest sales pace since it started tracking home sales statistics in 1963. It September 1981, the prior record was set when new homes sold at an annual rate of 338,000.

Consumer spending will take a hit

The decline in new home sales, if it continues, leads to a decline in housing prices, which will in turn lead to a decline consumer spending also — the biggest threat to economic recovery. Business Week reports the drop in residential construction is going to sap consumer spending that accounts for about 70 percent of the U.S. economy. There's direct correlation between home sales and spending on furniture, appliances and building materials. On June 11 the Commerce Department gave a report saying that sales at U.S. retailers fell 1.2 percent in May, the first decline in eight months, led by a record 9.3 percent plunge at building-material stores.

New home sales statistics makes government wary

New home sales fell sharply across the U.S., with sales down a lot more than 50 percent in the West. MarketWatch reports that housing market stats in May seemed dismal across the board. Housing stats fell 10 percent, building permits fell somewhere around 5.9 percent, mortgage applications dropped and the home builders’ index fell by five points. The dark cloud’s silver lining was mortgage rates, which stayed very low. Another glimmer of hope may be that government statisticians have low confidence within the monthly Commerce Department new home sales report, which is subject to major revisions, sampling flaws and statistical errors. The government explains that it can take up to four months to establish a statistically significant trend in sales.

U.S. unemployment rate to blame

New home sales are being affected by the U.S. job market. Edward Leamer, an economist at the University of California, Los Angeles, told MarketWatch that unemployment is the primary reason housing is weakening without the tax credit to spur demand. The U.S. economy would have to grow at a 5 percent to 6 percent rate to create "significant reductions" in joblessness. "People won't purchase homes when they are worried about their jobs," he explained.

Find a lot more info on this topic


No comments:

Post a Comment