The extraordinary drop in U.S. new homes sales may officially mark the beginning of a double-dip in housing activity.

The U.S. Census Bureau and the Department of Housing and Urban Development reported this morning that sales of new single-family houses dropped to a seasonally-adjusted annual rate of 300,000 (a record low) in May, following a downwardly revised 446,000 figure in April 2010, a 32.7% free fall. It is also 18.3% below the May 2009
estimate of 367,000.

A report in Action Economics (AE) indicated that while a sharp drop was expected, this new record low is much worse than anticipated.

Moreover, sales declined in all four regions. The supply of homes on the market edged down to 213,000 from 214,000 (revised from 211,000). The median sales price fell 1.0% to $200,900 from $202,900 (revised from $198,400).
 “That's down 9.6% year-over-year, a faster pace of decline than the -7.4% clip from April,” AE noted. “The data won't do stocks any favors, but will likely strengthen the bid in Treasuries.”

Paul Dales, US economist at Capital Economics, called the plunge “remarkable” and represents the start of the “double-dip in housing activity that we have been expecting for some time.”

New home sales had climbed by 28.5% in the two months leading to April, Dales noted, as buyers rushed to sign a contract before the home-buyer tax credit expired at the end of April.

“The fall-back in May is the result of sales having been brought forward from future months and is not a disaster in itself,” he added. “New home sales will probably rebound a touch in June and July.”

Other data, however, suggest that sales may not bounce back very sharply, he cautioned.

“In particular, mortgage applications for home purchase have fallen to a 13-year low, and dropped by a further 1.2% last week,” Dales indicated. “We fear that the appetite to buy a home has disappeared alongside the tax credit. After all, unemployment remains high, job security is low and credit conditions are tight. If we're right, it won't be long before a double-dip in prices gets underway, too.”

However, Dales does not think that a housing double-dip will be followed by a double-dip in the wider economy.

“Nonetheless, the overall economic recovery will still run out of steam next year,” he added.

To contact the editor, e-mail: