New Home Sales at Record Low

We expected the news to be bad, but this is really bad.

New homes were at a record low in May as buyers fled the market following expiration of the tax credit, down 33 percent from April (which itself was revised downward.)

This is why anyone with any sense (including me!) argued against the extension after it expired last time. We moved demand forward, artificially inflated prices and set ourselves up for another dip in home prices. Couple these declining sales with the rise in inventory as more sellers flood the market, and it's going to be ugly, probably for the rest of the year.

Once again it just points to the trouble builders are going to be facing, and that's going to trickle down to remodelers as well. Typically, the housing sector leads us out of a recession. That's clearly not going to happen here, which could be very bad news for all of us.

This week we pay the home sales piper

We're going to get our first indication on Wednesday just how big the crash is going to be following the expiration of the new home buyer tax credit. That's the day new home sales for May come out. May's the first month the credit won't have been a factor.

If early indications are any clue, it's going to be ugly. Everything I've been reading and hearing from people out there is that sales are down 20 to 50 percent depending on your market. We'll see how the national numbers come out.

Don't let Tuesday's numbers on existing home sales fool you. Those should still be good because existing sales are reported when the deal is closed, while new sales are reported when the contract is signed. With the recent move to extend the time for buyers to close on deals and get the tax credit, it could be months of those sales trickling in.