Home Sales Following Cash-For-Clunkers Trajectory

As a reminder, here is the effect of the cash-for-clunkers new car sales "stimulus."

A lot of taxpayer money was spent to line the pockets of a few lucky buyers without doing anything to change the overall trend of auto sales.

Well, it looks like with the end of the housing stimulus program, we are seeing the exact same effect:

Sales of new homes collapsed in May, sinking 33 percent to the lowest level on record as potential buyers stopped shopping for homes once they could no longer receive government tax credits.The bleak report from the Commerce Department is the first sign of how the end of federal tax credits could weigh on the nation's housing market.

The credits expired April 30. That's when a new-home buyer would have had to sign a contract to qualify.


New-home sales in May fell from April to a seasonally adjusted annual sales pace of 300,000, the government said Wednesday. That was the slowest sales pace on records dating back to 1963. And it's the largest monthly drop on record. Sales have now sunk 78 percent from their peak in July 2005.

Analysts were startled by the depth of the sales drop.

"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."


  1. morganovich:

    this is a more convincing new low than cash for clunkers was.


    also worth noting: prices were down 9.6% from a year ago, and both the april and march home sales numbers were adjusted down.

  2. mesaeconoguy:

    The home buying/selling process has changed dramatically for the worse. It is now practically impossible for documents to be conveyed in a timely manner, and there may be new HUD/Fannie Mae restrictions on things like holding title in trust which, because trusts are state-designated entities, invites a legal dispute.

    This has slowed down the process considerably.

  3. Sam L.:

    Worst of all, this was totally unexpected. Nobody could have foreseen... Women and children worst affected.

  4. Greg:

    Seems to me that this was totally expected, though maybe not the exact numbers. I expect that very few people, who were not already in the home buying market, became interested in buying just because of the credits.

    Most of the people using the credit were likely already in the market, soon would be, or otherwise borderline. So it makes perfect sense that sales under the credit would come at the expense of later sales. Things will bounce back to whatever level soon enough, probably in the fall (since summer isn't so hot for home sales anyway.)