New home sales plunge to lowest level on record

Jerry’s Comments: The housing market continues to go down due to a wide variety of factors. As we have predicted, the housing picture will not improve markedly until after 2012. This is due to the new waves of foreclosures and defaults thanks to the many Option Arm and Alt-A loans that were issued over the last several years. Get ready for the Sub-prime crisis, Part 2.

From Bloomberg

Purchases of new homes in the U.S. fell in May to a record low as a tax credit expired, showing the market remains dependent on government support.

Sales collapsed a record 33 percent to an annual pace of 300,000 last month from April, less than the median estimate of economists surveyed by Bloomberg News and the fewest in data going back to 1963, figures from the Commerce Department showed today in Washington. Demand in prior months was revised down.

Stocks dropped and Treasuries rose as the report added to signs of weakness in the economy after a decline in retail sales and a slowdown in private job growth. A lack of inflation and concern over jobs and housing are among reasons Federal Reserve policy makers today are likely to renew a pledge to keep interest rates near zero for an “extended period.”

“May was a bad month for the economy,” J. Alfred Broaddus, former Richmond Fed president, said in an interview on Bloomberg Television’s “In Business With Margaret Brennan.” When the Fed releases its policy statement today, its language on the economy will be “markedly more pessimistic,” he said.

The Standard & Poor’s 500 Index fell 0.6 percent to 1,089.27 at 10:39 a.m. in New York. The S&P Supercomposite Homebuilder Index decreased 0.4 percent. The yield on the 10- year Treasury note fell to 3.11 percent from 3.17 percent late yesterday.

Exceeds Drop Projected

Sales were projected to drop 19 percent to a 410,000 annual pace, according to median estimate of 76 economists surveyed by Bloomberg News. Forecasts ranged from 300,000 to 530,000. The government revised April’s purchase rate down to 446,000 from a previously reported 504,000.

The median sales price decreased 9.6 percent from the same month last year, to $200,900, today’s report showed.

Purchases dropped in all four U.S. regions last month, led by a record 53 percent drop in the West.

The supply of homes at the current sales rate jumped to 8.5 month’s worth, from 5.8 months in April. There were 213,000 new houses on the market at the end of May, the fewest since 1970.

A report yesterday showed sales of previously owned homes unexpectedly fell in May, adding to concern the retrenchment following the end of the tax incentive will be deeper than anticipated. Existing house purchases, calculated when a contract closes, dropped to a 5.66 million annual rate, the National Association of Realtors said.

New-home sales are considered a more timely barometer of the market than purchases of previously owned homes, which account for about 90 percent of the housing market.

Housing Slump

Other data show the market is starting to stumble. Housing starts in May declined by the most since March 2009, and building permits, a sign of future construction, fell to a one- year low, data from the Commerce Department showed. The National Association of Home Builders/Wells Fargo confidence index for June fell by the most since November 2008.

The number of mortgage applications filed to purchase houses dropped this month to the lowest level since 1997, according to data from the Mortgage Bankers Association.

The Standard & Poor’s Supercomposite Homebuilder Index, which includes Toll Brothers Inc. and Lennar Corp., has dropped 28 percent since reaching a 19-month high on May 3. The broader S&P 500 Index is down 10 percent from April 23’s 19-month peak.

Builders are also concerned that the Gulf oil spill and European debt crisis are hurting buyer confidence. Toll, the largest U.S. luxury homebuilder, said deposits have been running 20 percent behind the year-earlier period the past three weeks.

Consumer Outlook

“Concerns about the financial crisis in Europe and escalating regional political tensions, coupled with worries about the oil spill in the Gulf of Mexico and its effects on the economy and the environment have negatively impacted the outlook of American consumers,” Joel H. Rassman, chief financial officer at Horsham, Pennsylvania-based Toll, said in a June 16 statement.

Hovnanian Enterprises Inc., the largest homebuilder in New Jersey, said orders fell 17 percent in the quarter ended April 30 from a year earlier, and contract signings slowed in May, indicating the tax credit helped pull some sales forward.

To contact the reporters on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net; Timothy R. Homan in Washington at thoman1@bloomberg.net.

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