The news that new-home sales fell by a staggering 33% in May — the month after the $8,000 new homebuyer tax credit ended — has the housing industry reeling.
What’s on tap for the housing market now — and why is the dreaded term “double dip” on the lips of more and more housing industry observers?
Overall, U.S. new-home sales fell to an annual pace of 300,000 — that’s the lowest number recorded since the Commerce Department began tracking new-home sales back in 1963. Economists had expected new housing purchases to decline by 19% — to a 410,000 annual pace. The median price for a new U.S. home also slid — by 9.6% to $209,000, compared to the same period a year ago.
Adding to the carnage was a 2.2% drop in sales of previously occupied homes in May compared to April.
The chief culprit for the big decline seems to be the recently-ended $8,000 new homebuyer tax credit. That credit, which essentially gave new homebuyers $8,000 toward a new home, was ended on April 30 (although Congress recently extended the home-closing end of the credit from June 30 to Sept. 30).
The short-term impact of the May housing numbers was immediately apparent: the Standard & Poor’s 500 Index dropped .6% following the housing report Wednesday morning.
Meanwhile, the benchmark U.S. Treasury Note fell from 3.17% on Wednesday to 3.09% by Thursday morning. Both numbers indicate the financial markets view the housing numbers, along with another flat unemployment claims number this week, as red flags that the economic recovery is fragile at best, and in danger of a “double-dip” slide back into recession at worst.