June 23, 2010 / 2:35 PM / 8 years ago

WRAPUP 4-US new home sales at record low as tax credit expires

   * New home sales tumble record 32.7 percent
 * March and April sales revised down sharply
 * Month supply highest in nearly a year, median price dips
 (Updates markets to close)
 By Lucia Mutikani
 WASHINGTON, June 23 (Reuters) - Sales of new U.S. homes
dropped a record 32.7 percent in May to the lowest level in at
least four decades as the boost from a popular tax credit
faded, adding to worries over a slowing economic recovery.
 Single-family home sales tumbled to a 300,000 unit annual
rate, the lowest level since the series started in 1963, the
Commerce Department said on Wednesday.
 The gloomy report was the latest to imply the economy's
recovery from the most painful downturn since the 1930s might
be losing strength, but few analysts expect a double-dip
recession.
 "This tends to reduce expectations for second quarter
growth. We are going to go through a period where home sales
are extremely depressed before we see a recovery take hold,
probably late this year," said Mark Vitner, senior economist at
Wells Fargo Securities in Charlotte, North Carolina.
 The Federal Reserve toned down its assessment of the
economy, describing the recovery as "proceeding" in a statement
at the end of its two-day policy meeting. In April, it had
viewed the economy as continuing to strengthen. The U.S.
central bank left overnight lending rates in the zero to 0.25
percent range set in December 2008. [ID:nN22150078]
 Not only did new home sales in May miss market forecasts
for a 410,000 unit-pace, figures for the prior two months were
revised down sharply. That indicated the lift from the
homebuyers' tax credit was not as large as previously thought.
 The weak housing report and the Fed's downgraded assessment
of the recovery caused a volatile session on Wall Street. The
broader Standard & Poor's 500 index .SPX ended down 0.3
percent and the blue chip Dow Jones industrial .DJI edged up
0.05 percent.
 U.S. Treasury debt prices rose, while the dollar fell
against the yen and euro.
  Data from retail sales to employment have pointed to a
moderation in the pace of the economic recovery that started in
the second half of 2009. Against the backdrop of a fragile
economy and a sovereign debt crisis in Europe, analysts do not
see the Fed raising interest rates until sometime in 2011.
 "There's no rate hike expected for the foreseeable future.
At least not until the end of the year, if not 2011. The Fed is
concerned about threats to growth, not threats to inflation,"
said Michael Woolfolk, senior currency strategist at BNY
Mellon, in New York.
 HOME LOAN DEMAND PLUMMETS
 The expiry of the tax incentive for home buyers has also
resulted in a decline in new home construction and a big drop
in demand for home loans.
 The Fed softened its view of home construction, saying
housing starts "remain at a depressed level." It previously
described groundbreaking activity as having "edged up."
 To qualify for the the tax credit, prospective home owners
had to sign contracts by April 30. Since then, applications for
loans to buy homes have fallen sharply. Last week they dropped
for the sixth time in seven weeks, staying near 13-year lows.
[ID:nNLLMHE66W]
 New home sales are measured at contract signing. A report
on Tuesday showed sales of previously owned homes, which are
recorded at contract closing, also fell in May.
 Last month's weak new home sales pace saw the supply of
homes available for sale jumping a record 46.6 percent to 8.5
months' worth, the highest in nearly a year, from 5.8 months'
worth in April. However, the number of new homes on the market
dipped to 213,000 units, the lowest since November 1970.
 The median sale price for a new home fell 1.0 percent in
May from April to $200,900. In the 12 months to May, prices
fell 9.6 percent, the largest decline since July 2009.
 Although mortgage rates are near record lows, a deluge of
foreclosed properties is stiffling recovery.
 The number of newly initiated foreclosures rose 18.6
percent to 370,856 in the first quarter, a separate report from
U.S. banking regulators showed. However, delinquencies on home
mortgages fell for the first time in more than two years.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
 For a graphic on new home sales, see:
link.reuters.com/max63m
 For a graphic on mortgage applications, see:
link.reuters.com/pak53m
 For a graphic on existing home sales, see:    
link.reuters.com/gaw43m
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Additional reporting by Corbett Daly; Editing by Andrew Hay)



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