Without a government subsidy to prop up the housing market, new-home sales in May plunged 32.7% to a record low 300,000, worse than the 20.6% drop to 400,000 that economists had estimated. Sales dropped in all four regions, including a whopping 53% plunge in the West. The steep decline also comes after two months of big increases as buyers earlier rushed to qualify for the tax credit before its expiration.
“Bottom line, we knew there would be a large post tax credit drop in sales but the degree is obviously big,” says Miller Tabak’s Peter Boockvar. Beyond today’s data, he wonders what will happen in the near-term as markets adjust to life without the subsidy. “The distortion of steroid shots into the marketplace has only made long-term planning and thus efficiently allocated capital that much more difficult to coordinate.”
The government, of course, was hoping that the economy would’ve improved by the time the tax credit faded so that increasing employment and income would’ve helped stabilize the housing market, Barbara Kiviat points out at Time’s Curious Capitalist blog.
But “anyone who was surprised this morning that this hasn’t yet happened hasn’t been paying attention,” she says. Now, instead of a tax credit, all the market can rely on is the “fundamental force of affordability.”