Sales of newly built, single-family homes declined dramatically in May, following the expiration of the home-buyer tax credit program in April, according to newly released figures by the U.S. Commerce Department. The data show that sales fell 32.7 percent to a seasonally adjusted annual rate of 300,000 units, the lowest number on record since the government started keeping track in 1963.
“While today’s numbers are sobering, they were to be expected at the conclusion of the tax credit program and are in keeping with the results of our latest home builder surveys,” said Bob Jones, chairman of the National Association of Home Builders (NAHB). “Clearly, the tax credits were very successful in drawing potential buyers back to the market. Now, we are seeing the lull in activity you’d expect following the program’s expiration.”
“Because many buyers moved quickly to take advantage of the tax credits, sales that would have taken place in May or June were likely pulled forward to meet the program’s deadline, which is why we have been projecting softer sales numbers for the second quarter,” said David Crowe, NAHB chief economist. “But once this ‘hangover’ subsides, 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.”
In response to the home-buyer tax credit expiration, NAHB reported lower housing starts and permits.
“Not surprisingly, builders tapped the brakes on new-home production and pulled fewer permits for new homes in May in response to an expected lull in buyer demand following expiration of the tax credits at the end of April,” Jones said.
Sales of new homes declined across every region in May. The Northeast registered a 33.3 percent decline; the Midwest, a 23.9 percent decline; the South, a 25.4 percent decline; and the West, a 53.2 percent decline.
The nationwide inventory of new homes on the market declined by half a percent to just 213,000 units in May; this was the lowest level in nearly four decades. However, because of the slower sales pace, the month’s supply of homes rose from 5.8 in April to 8.5 in May.
The decline in housing starts in May was entirely on the single-family side, where the government’s tax credits for first-time and repeat buyers had the greatest impact in the previous months. In that segment, starts fell 17.2 percent to a seasonally adjusted annual rate of 468,000 units, their slowest pace since May of 2009. Meanwhile, multifamily starts, which can be more erratic on a monthly basis, showed a dramatic 33 percent gain in May to a rate of 125,000 units.
Permit issuance, which can be an indicator of future building activity, fell 9.9 percent on the single-family side to a rate of 438,000 units in May, which was also the slowest pace since May 2009. Multifamily permit issuance rose 9.7 percent to 136,000 units in May.
Snapping a string of two consecutive monthly gains, builder confidence in the market for newly built, single-family homes fell back to February levels, before the beginning of the home-buyer tax credit-related surge, according to results of the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released June 15. The HMI dropped five points to 17 in June.
“The reduction in consumer activity may have been more dramatic than some builders had anticipated, which resulted in their lower confidence levels,” Jones said.
It seems, as a result of the tax credit expiration, contractors aren’t as hopeful for the economic recovery as they were before. The lower confidence levels indicate the hit in May was worse than expected.
Derived from a monthly survey that NAHB has been conducting for more than 20 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months.