WASHINGTON — In a move that signaled a renewed housing slump that threatens the broader economy, sales of new homes fell in May to their lowest level on record, plunging 33 percent from the month before.
The bleak data followed a report earlier this week that sales of existing homes dipped, too.
The Federal Reserve, mindful of the fragility of the housing market, struck a more cautious tone Wednesday in its read on the economy. It said only that the recovery is "proceeding." It had previously said the rebound was strengthening. The group also repeated its pledge to hold interest rates at record lows to fuel economic growth. That has helped keep mortgage rates down, but even ultra-low rates couldn't overcome the chilling effect on new-home sales caused by the end of the tax credits.
"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."
New-home sales for May came in at a seasonally adjusted annual sales pace of 300,000, the Commerce Department said Wednesday. That was the slowest in the 47 years records have been kept. And it was the largest monthly drop on record. Sales have now sunk 78 percent from their peak five years ago.
The broader economy is feeling the impact. The drop in new-home sales means fewer jobs in the construction industry, which normally powers economic recoveries. This time, construction has remained lackluster.
The discouraging report on housing "really speaks to the sustainability of the economy without stimulus" from the government, Wells Fargo Securities economist Anika Khan said. "We are still very much in the nascent stages of the recovery."
Buyers who signed sales contracts by the April 30 deadline have until June 30 to close on their purchases and qualify for the tax credit. Because the new-home sales report measures contracts to buy homes, it offers a glimpse of what the housing industry will endure throughout the summer. Unlike new homes, sales of previously occupied homes are recorded not when a contract is signed but when a sale closes. That can sometimes take two months.