New home sales plummet to record low

The Commerce Department reported today that sales of new homes went off a cliff after the expiration of the Obama administration homebuyer tax credits. In May, sales were at a rate of 300,000 a year. That’s 33 percent lower than in April, when the rate was 446,000, and 18.3 percent lower year-on-year.

It represents the slowest sales pace since the Commerce Department started keeping track in 1963. The prior monthly record low was in September 1981, when new homes were selling at a 338,000 rate. Economists expected a rate somewhere around 400,000. Home sales dropped most precipitously — by more than half between April and May — in the West, though sales in every region dropped more than 25 percent.

To some extent, this is not unexpected. The housing market remains extremely weak, with home value declines likely to continue in some regions. The homebuyer tax credit borrowed buyers from other months, creating an surge in March and April. Still, it is a sign of continued softness in the market, possibly auguring another decline in housing. The above chart shows annual rates for all years since 1963 — this spring’s sales increases are smoothed out.

The report on new home sales follows yesterday’s news from the National Association of Realtors that sales of existing homes dropped 2.2. percent from April to May.