The only people surprised by this result are the analysts at Reuters — and even they predicted a drop of some kind at the end of the home-buyer tax credit in April.  They didn’t expect to see this large a drop, and they also note that the rest of the year looks pretty bleak as well.  And, for a bonus, home starts didn’t rise as much as first reported in April, either (via Instapundit):

Housing starts fell more than expected in May to their lowest level in five months, a government report showed on Wednesday, as a popular homebuyer tax credit that had buoyed construction activity over the past two months expired.

The Commerce Department said housing starts dropped 10 percent to a seasonally adjusted annual rate of 593,000 units, the lowest level since December. The percentage decline was the biggest in 14 months. April’s housing starts were revised down to show a 3.9 percent increase, which was previously reported as a 5.8 percent rise.

Analysts polled by Reuters had expected housing starts to fall to 650,000 units. Compared to May last year, starts were up 7.8 percent.

New building permits, which give a sense of future home construction, dropped 5.9 percent to a 574,000-unit pace in May, the lowest in a year. That followed a 10.9 percent drop in April and compared to analysts’ forecasts for a rise to 630,000 units.

Again, had anyone followed the year’s indicators, this would not come as a surprise.  Inventory still remains too high to provide much incentive for new starts, especially in the resale market, where foreclosures offer cash buyers their best deals.  Mortgage applications dropped in May by over 40% to a low not seen since April 1997.

As a result, home builders not only lost enthusiasm for new building at present, they’re not betting on the future, either.  The permit process is time consuming, but a necessity to get projects in motion within a few months.  The relative lack of interest in new permits — its lowest level in a year — indicates that players in the home-construction market see this as a turndown of at least moderate length, and it hits at what should be prime building season.

I’ve written repeatedly about the Obama administration’s kick-the-can economic policies, such as Cash for Clunkers and the short-term home-buyer tax credit, and their inability to do anything but delay the inevitable revaluing of property and credit.  Like C4C, the short-term government incentives in the housing markets haven’t created a new class of qualified and enthusiastic buyers; they have only subsidized sales that would have occurred anyway in the future.  And as one of Instapundit’s readers noted, the problem with stealing sales from the future is that the future always arrives, and expectedly.