New home sales plunged 33% in May after the expiring homebuyer tax credit pushed sales in April to the highest level since August 2008. Most housing analysts expected a decline but not one this significant.
"We all knew there would be a housing hangover from the expiration of the tax credit," said Mike Larson of Weiss Research, "but this decline takes your breath away."
The U.S. Census Bureau reported that sales of newly constructed single-family homes dropped to a seasonally adjusted annual rate of 300,000 in May from a 446,000 rate in April. The 300,000 sales rate is the lowest rate since September 1981. April sales were revised downwards by 58,000 units.
The April 30 expiration of the federal homebuyer tax credit hit sales on new homes harder than existing homes because builders have low inventories and the construction must be completed in time to close by June 30.
"Today's report was below expectations, but the underlying level of demand will not be apparent until the distortionary effects coming from the tax credit fade," said a report from Barclays Capital. "We expect new home sales to bottom over the next couple of months and to return to a gradual upward trend thereafter."
National Association of Home Builders senior economist Bernard Markstein noted that the tax credit pulled sales forward, adding that it will be difficult to get a true reading of where the market is headed until sales settle out in July and August.