New home sales fell as outlined by a report by the Commerce Department released June 23. A slide in new home sales statistics was expected following the home buyer tax credit expired in April. But the 32.7 percent drop in May was so much more than expected. Existing home sales dropped also, surprising forecasters who expected them to rise. Unemployment is the primary reason the housing market is doing this bad without the tax credit. Sharp declines in the housing market, a critical component of consumer spending, are threatening the fitful U.S. economic recovery.
Article Resource: New home sales fall to record low in May after tax credit expires
New home sales – a new low
New home sales, in March and April, surged 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. CNNMoney.com 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. It was said by the Commerce Department that the May figures are the slowest sales pace since it started tracking home sales statistics in 1963. The prior record was set in September 1981, when new homes sold at 338,000.
Consumer spending takes a hit
The decline in new home sales leads to a decline in housing prices, which leads to a decline consumer spending as well — the biggest threat to economic recovery. Business Week reports that 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 things such as furniture, appliances and building materials. On June 11 the Commerce Department reported 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 easily across the U.S., with sales down more than 50 percent within the West. MarketWatch reports that housing market stats in May terrible across the board. Housing starts fell 10 percent, building permits fell 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. One more glimmer of hope may be that government statisticians have such a low confidence in the monthly Commerce Department new home sales report, which is subject to major revisions, sampling flaws and statistical errors. The government says it can take up to four months to establish a statistically significant trend in sales.
US unemployment rate is who we blame
New home sales are being affected by the U.S. job market. Edward Leamer, who’s an economist at the University of California, Los Angeles, told MarketWatch that unemployment is the main 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’re worried about their jobs,” he said.
Additional info at these websites
CNN Money.com
money.cnn.com/2010/06/23/real_estate/new_home_sales/?npt=NP1
businessweek.com
businessweek.com/news/2010-06-23/housing-market-threatens-u-s-recovery-as-sales-slide.html
Marketwatch.com
marketwatch.com/story/new-home-sales-plunge-33-to-record-low-in-may-2010-06-23?reflink=MW_news_stmp
Martin Rogen 
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