New home sales fell to a record low according to a report by the Commerce Department released June 23. A drop in home sales statistics was expected following the home buyer tax credit expired at the end of 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 apparently the primary reason the housing market is flagging without the tax credit. Sharp declines within the housing market, a critical component of consumer spending, are threatening the fitful U.S. economic recovery.
A new low – new home sales
New home sales, in March and April, surged as homebuyers hurried to buy 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 the May decline of 32.7 percent represents a drop to 300,000 homes from 446,000 which were there in April. Over the year, the sales fell 18.3 percent. The Commerce Department explained 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 an annual rate of 338,000.
A hit is take by consumer spending
The decline in new home sales leads to a decline in housing prices, which leads to a decline consumer spending also — the biggest threat to economic recovery. Business Week reports the drop in residential construction will sap consumer spending that accounts for about 70 percent of the U.S. economy. There’s direct correlation between home sales and spending on 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
. MarketWatch reports that housing market stats in May terrible across the board. Housing stats fell 10 percent, building permits fell somewhere around 5.9 percent, mortgage applications dropped and also the home builders’ index fell by five points. Mortgage rates stayed very low. Another glimmer of hope may be that government statisticians have such a low confidence within the monthly Commerce Department new home sales report, which is subject to major revisions, sampling flaws and statistical errors. The government explains that it can take up to four months to set up 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, an economist at the University of California, Los Angeles, told MarketWatch that unemployment is the primary reason housing is weakening without the tax credit to spur demand. The U.S. economy would have to grow at a 6 percent rate to create “significant reductions” in joblessness. “People won’t buy homes when they are worried about their jobs,” he explained.
A lot more information on this topic
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
