I was born in 1963, a year in which the US sold 300,000 new homes. Forty-six years later, we may be back to the same pace, thanks to ill-advised government intervention that sapped the demand for new homes. The annualized rate of new-home sales fell to a 46-year low in May, which had a 33% drop from April’s figures:
Sales of new homes collapsed in May, sinking 33 percent to the lowest level on record as potential buyers stopped shopping for homes once they could no longer receive government tax credits.
The bleak report from the Commerce Department is the first sign of how the end of federal tax credits could weigh on the nation’s housing market.
The credits expired April 30. That’s when a new-home buyer would have had to sign a contract to qualify.
“We fear that the appetite to buy a home has disappeared alongside the tax credit,” Paul Dales, U.S. economist with Capital Economics,” wrote in a note. “After all, unemployment remains high, job security is low and credit conditions are tight.”
That has been the problem all along. While the government offered tax credits to stimulate demand, it did little to create qualified buyers. By taking on boatloads of debt to chase pork-laden “stimulus” spending and send signal after signal of higher costs and more mandates on business, the Obama administration kept capital on the sidelines or looking for greener pastures overseas. High unemployment and tightening credit meant fewer buyers for the short- and medium-term.
Instead of allowing that demand to unfold naturally over the course of 2009-10, the Obama administration and Congress decided on two short-term stimuli in the form of tax credits on home purchases. Unfortunately, the $8000 credit made very little difference in whether a buyer was qualified or not, but it did provide a mighty incentive for those who would have bought anyway to accelerate their purchases. Just as with Cash for Clunkers, the American taxpayer ended up subsidizing sales that would have taken place anyway, only for the short-term impact that momentarily brighter news gave to an administration in way over its head on economics.
Analysts declared themselves “startled”:
“We all knew there would be a housing hangover from the expiration of the tax credit,” wrote Mike Larson, real estate and interest rate analyst at Weiss Research. “But this decline takes your breath away.”
Economists surveyed by Thomson Reuters had expected a May sales pace of 410,000. April’s sales pace was revised downward to 446,000.
Why would it take anyone’s breath away? Mortgage applications fell by over 40% in May. A 33% drop in sales is actually slightly better than what that data would predict. The difference may be that more people leaned towards new homes rather than resales, or that cash buyers are more of the market than normal, which would make some sense.
The smoke-and-mirrors economic policies of this administration have been thoroughly exposed. This is a disgrace, and taxpayers should be demanding to know why Obama and his team have sunk us deeper into debt without producing any real economic gains.