April Ending of Home Buyer Tax Credits Stalls May's New Home Sales, Says NAHB

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Nationwide housing starts and issuance of building permits stalled in May following the expiration of a popular home buyer tax credit program, according to data released by the U.S. Commerce Department today. New-home production declined 10 percent to a seasonally adjusted annual rate of 593,000 units, the slowest pace since December 2009, while permit issuance slowed 5.9 percent to a rate of 574,000 units, its slowest pace since May 2009.

"Not surprisingly, builders tapped the breaks on new-home production and pulled fewer permits for new homes in May in response to an expected lull in buyer demand following expiration of the tax credits at the end of April," noted Bob Jones, chairman of the National Association of Home Builders (NAHB) and a home builder from Bloomfield Hills, Mich.

"Today's numbers show an anticipated pull-back on single-family building following the tax credit deadline," acknowledged NAHB Chief Economist David Crowe. "No doubt, a certain amount of building and buying activity that would have taken place in May was pulled forward to accommodate the program's end date, which is why we have projected some softening of the numbers in the second quarter. That said, in the coming months, an improving economy, rising employment, low mortgage rates and stabilizing home values should play their part to keep the housing market moving forward."  Crowe noted, however, that the ongoing difficulties builders are having in obtaining financing for viable new projects and accurate appraisals of new homes are complicating factors that are slowing the industry's recovery.

The decline in housing starts in May was entirely on the single-family side, where the government's tax credits for first-time and repeat buyers had the greatest impact in the previous months. In that segment, starts fell 17.2 percent to a seasonally adjusted annual rate of 468,000 units, their slowest pace since May of 2009. Meanwhile, multifamily starts, which can be more erratic on a monthly basis, showed a dramatic 33 percent gain in May to a rate of 125,000 units.

Permit issuance, which can be an indicator of future building activity, fell 9.9 percent on the single-family side to a rate of 438,000 units in May, which was also the slowest pace since May 2009. Multifamily permit issuance rose 9.7 percent to 136,000 units in May.

Regionally, housing starts were mixed in May, with the Northeast posting a 6.3 percent decline, the Midwest a 4.9 percent increase, the South a 21.3 percent decline, and the West a 10.8 percent increase. Permits fell in every region, with a 1.5 percent decline in the Northeast, a 9.6 percent decline in the Midwest, a 5.2 percent decline in the South and a 6.8 percent decline in the West.

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