New homes sales drop to lowest levels in nearly 50 years

Sales of new homes plummeted 33 percent in May to the lowest level on record following the expiration of a federal government tax credit. 

Sales dropped to an annual pace of 300,000 last month from April, the slowest pace since 1963 and largest monthly drop on record, startling analysts who predicted that demand would decline but nowhere near as much as it did, the Commerce Department reported Wednesday. 

Sales have decreased 78 percent from their peak in July 2005. 

Economists had expressed concern that the housing market could go into a deep slump after the government tax credit — that provided up to $8,000 — expired April 30. 

Sales dropped across the country in May, with the West leading the pack, recording a 53 percent decrease. Sales fell 33 percent in the Northeast, 25 percent in the South and 24 percent in the Midwest. 

The government also revised sales downward from previous months as April's sales rate dropped to an annual pace of 446,000 from a previously reported 504,000. The median sales price decreased 9.6 percent from the same month last year and down 1 percent from April to $200,900, Wednesday’s report showed.

May in general was a bleak economic month for the economy across the board. 

"May was a bad month for the economy," said J. Alfred Broaddus, former Richmond Federal Reserve president, in an interview on Bloomberg Television's "In Business With Margaret Brennan." When the Fed releases its policy statement today, he said, its language on the economy will be "markedly more pessimistic." 

A report on Tuesday showed sales of previously owned homes unexpectedly fell in May, adding to concern the retrenchment following the end of the tax incentive will be deeper than anticipated. Existing house purchases, calculated when a contract closes, dropped to a 5.66 million annual rate, the National Association of Realtors said.