New-home sales plummeted in May

New-home sales in May plummeted as the April 30 end of a federal tax credit continued to bring the real estate market to a crawl.

The Commerce Department reported Wednesday that sales of new single-family homes fell 32.7 percent from April and were 18.3 percent below May 2009.

The annualized sales rate of 300,000 homes was the lowest since the Commerce Department began keeping data in 1963. Between 1964 and 1997, annual sales ranged between 450,000 and 650,000.

Annual sales began exceeding 700,000 units in 1998, and surpassed one million in 2004-06. In 2009, 375,000 single-family houses sold, Commerce data show.

The report came a day after disappointing figures for existing-home sales - a 2.2 percent drop from April.

The absence of buyers from the market was evident in a report by the Mortgage Bankers Association on Wednesday that showed home-loan applications were down 6 percent from the previous week.

While some builders' groups emphasized its importance to spring sales, the recently expired tax credit played a minimal role in new-home sales this year, economists say.

"If one attributes March and April's increase to the tax credit, then only about 11,200 additional new homes were sold because of the tax credit," said IHS Global Insight Inc. economist Patrick Newport. "In an economy that puts up about 1.5 million homes during normal times, these are very small numbers."

A new-home buyers' tax credit in the mid-1970s had a much greater effect on sales, adding 200,000 units to the annual sales numbers in 1977 and 1978, data show.

The National Association of Realtors estimates that 180,000 home buyers who are eligible for the tax credit may not make the June 30 closing deadline. The Senate last week passed an extension to Sept. 30. House approval is awaited.

Sales numbers aside, new and existing homes that did sell because of the credit helped stabilize home prices after almost four years of declines.

Leveling prices and the effects of private and government efforts to modify troubled mortgages have led to the first increase in the number of borrowers paying their home loans on time in two years.

In a first-quarter report Wednesday, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said 87 percent of mortgages were being paid on time as of the end of March.

The number of loans modified to make payments more affordable for homeowners increased 8.1 percent.

The median price of a new home was $200,900, Commerce reported. There were just 213,000 new homes - an 8.5-month supply at the current sales rate - for sale, the lowest number since November 1970, Newport said.

While the effects of the tax credit on new-home sales are up for debate, National Association of Home Builders chief economist David Crowe said, "we do believe that the improving economy, rising employment, excellent mortgage rates, and stabilizing home values will be strong incentives that will encourage home buyers to return to the market."

The median time to sell a home is still near a record high - 14.2 months - instead of the usual five months, Newport said.

"For builders [those still standing], market conditions remain brutal," Newport said. "But things should be looking up soon."