The double dip in the US housing market has begun, which means that already depressed home prices have further to fall.
The picture looks especially bleak right now because the federal tax credit for home buyers, which had buoyed sales, expired in April. That's why sales of new homes were expected to fall in May.
But the actual plunge, reported Wednesday, was far worse than almost anyone expected. The seasonally adjusted annual rate of 300,000 homes in May is the lowest level ever reported by the Census Bureau since the bureau began tracking the data in 1963.
The median sales price of new homes sold in May also fell to a seven-year low of $200,900, the report said.
"The remarkable 32.7 percent month-on-month plunge in US new home sales ... officially marks the start of the double-dip in housing activity that we have been expecting for some time," writes Paul Dales, a Toronto-based economist with Capital Economics, in an analysis.
Combined with other disappointing housing data, the outlook for housing this year is growing gloomier.
Overall, home prices will be down 1.3 percent by the last quarter of this year compared with the same period in 2009, according to a survey of 106 economists, real estate experts, and others released Wednesday.
“The consensus expectation for future US home price performance is now somewhat less optimistic, most notably for 2010,” said Robert Shiller, cofounder of MacroMarkets, a risk management firm in Madison, N.J., which conducted the survey. A month ago, only 40 percent of the panelists expected home prices to fall. This month, 56 percent did.
Other indicators have also turned negative. Sales of existing houses fell unexpectedly last month, down to 2.2 percent, the National Association of Realtors reported Tuesday.
Mortgage applications by home buyers also fell 1.2 percent last week, near a 13-year low set a couple of weeks ago, according to the Mortgage Bankers Association.
"Prices will continue to edge lower at the bottom end of the market," forecasts Joshua Shapiro, a New York-based economist at MFR, in a written analysis. "Conditions remain brutal in the middle and upper ranges of the spectrum, with elevated unemployment and prices that are still considerably too high in many markets."