US new home sales plummet 32.7% in May, shaking market

23 June 2010 16:40  [Source: ICIS news]

WASHINGTON (ICIS news)--US sales of new single-family homes plummeted in May, the Commerce Department said on Wednesday, falling by nearly 33% from April when a year-long federal tax credit for home buyers ended.

In its monthly report, the department said that May sales of new one-family residences - regarded as the core of the nation’s housing sector - were at a seasonally adjusted annual rate of 300,000 during May, a decline of 32.7% from April.

That sharp decline followed a 15% gain seen in April, as home shoppers rushed to buy before the 30 April deadline for the $8,000 (€6,480) federal tax credit.

Housing market analysts have noted that the expiring tax credit probably pulled some sales from June and July as buyers who might have planned a purchase later in the peak summer housing period moved quickly to take advantage of the tax credit.

However, May’s new home sales also were down considerably - 18.3% - from a year ago when May 2009 single-family residential transactions were at an annualised and seasonally adjusted rate of 367,000 units.

The housing market is a key downstream consumer sector for the chemicals industry, driving demand for a wide variety of chemicals and chemicals-based products such as plastic pipe, insulation, paints and coatings, adhesives and synthetic fibres, among many others.

The American Chemistry Council (ACC) estimates that each new home built represents some $16,000 worth of chemicals and derivatives used in the structure or in production of component materials.

The department also said that approximately 213,000 new single-family homes were available for sale across the country at the end of May, representing a supply of 8.5 months at current sales rates.

That 8.5-month inventory marks a significant gain from April when the supply of homes had eased to a 5.8-month backlog.

The higher 8.5-month inventory in May also puts the supply of new homes for sale above the 7.5- to 8-month levels that had characterised much of the last 12 months, and it puts the current inventory even with June 2009.

During normal economic conditions, the inventory of unsold new homes would show a supply of three to five months.

Citing the end of the federal tax credit incentive in April, US housing industry officials had been expecting a decline in new home and existing home sales in May, June and perhaps even into July.

But the breathtaking 32.7% fall-off in May indicates that the federal tax credit - essentially a government subsidy for the housing sector - was the major force underlying what had been seen as a developing recovery.

With that federal subsidy at an end, analysts will be watching housing data over the next several months to see if there is any indication at all that the key home building market can attract enough buyers to sustain a real recovery.

The decline in new home sales last month was nationwide, the department’s data indicated, falling in every region.

The northeast saw a slightly higher 33.3% decline in May from April, while the nosedive in new home sales was slightly less in the midwest, down 23.9%, and the south, off by 25.4%.

But in the west - where much of the years-long US housing crisis has been focused - new home sales fell off a cliff, dropping by more than 53% in May.

($1 = €0.81)

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