New Home Sales at Record Lows

23 06 2010

The homebuyer tax credit expired in April, prior to that, new home sales were on a two-month gaining trend. May was not so fortunate though. Sales of new homes plummeted to a record low of 300,000 (adjusted annual rate) new homes sold in a month. Prior to that, the record was an annual rate of 338,000 in September 1981.

Why such a huge decline? Obviously the rise over the last few months was not realistic; rather it was directly impacted by the fact that the tax credit was going to expire soon.  First time home buyers got up to $8,000 in a tax credit, and repeat buyers received a tax credit of up to $6,500. In my opinion, the decline is an exaggeration based on the rushed growth prior to the tax credit expiration. Simply put, with or without the tax credit, new home sales are a far cry away from the normal annual rate, between 800,000 and 900,000.

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