U.S. New Home Sales Drop 33% in May, to Record Low

U.S. New Home Sales Drop 33% in May, to Record Low
By CHRISTINE HAUSER
Copyright by The Associated Press
Published: June 23, 2010
http://www.nytimes.com/2010/06/24/business/economy/24home.html?hp


Sales of new homes dropped to a record low in May, showing just how much the market has been dependent on a federal stimulus program, according to new government figures released Wednesday.

The Commerce Department figures showed that new single-family homes sold last month at a seasonally adjusted annual rate of 300,000, down 32.7 percent from the revised April rate of 446,000.

Analysts had expected sales to fall to about 400,000 in May after a government tax credit for new buyers expired at the end of April. Many said the actual figure was exceedingly low.

“That new home sales would decline in May following the expiration of the home buyers credit is not at all surprising,” said Dan Greenhaus, chief economic strategist for Miller Tabak, in a research note. “However, we would be lying if we said the size of the drop was not shocking.”

Mr. Greenhaus said the 32.7 percent drop was the largest since the government started compiling the data in 1963, surpassing the 23.8 percent decline in January 1994. The May sales rate is 18.3 percent below that of May 2009, when the figure was 367,000.

Home sales can offer insight into the state of the economic recovery because of their implications for consumer spending and the way they reflect the health of the job market. The news followed a weak report on Tuesday about existing home sales, which also fell in May compared with April.

Joshua Shapiro, chief United States economist for MFR, said it would be wrong to see anything dire in one month’s data, but it did underscore how important the federal stimulus had been in propping up the market, suggesting that the stimulus had masked economic weaknesses.

“And now you are going to see some weak numbers for a while,” Mr. Shapiro said. “We think prices have to come down further and there is too much supply. It is going to be quite a struggle for several months.”

On Wednesday, the stock market turned lower after the home sales report and ahead of a Federal Reserve statement on interest rates after a two-day meeting of its policy committee. Before noon the Dow Jones Industrial Average was down 30.68 points, or 0.3 percent, at 10,262,84. The Standard & Poor’s 500-stock index was 0.55 percent lower, and the Nasdaq composite was down 0.65 percent.

The home sales report also set off a bout of dollar and yen buying as people sought safer investments than stocks, according to a currency analyst. “The dollar had already started recovering before the news as the equity market failed to hold initial gains, but the news has seen the dollar’s rise accelerate,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman.

It also spurred aggressive buying in the Treasury markets, which Guy LeBas, chief fixed income strategist for Janney Montgomery Scott, described as a “knee-jerk reaction.”

The seasonally adjusted estimate of new houses for sale at the end of May was 213,000, representing a supply of 8.5 months at the current sales rate, the government report said. The median sales price of new houses sold in May was $200,900, while the average sales price was $263,400.

But Mr. Greenhaus noted that one month of data did not necessarily indicate a trend, and said that prices, which are about 10 percent lower than in 2009, continued to improve.