In a Surprise, Sales of New Homes Dip 3.3%

The government Wednesday reported a surprising drop in new-home sales during May, raising questions about the vigor of the economic recovery and sending builders and bankers scrambling for explanations.

The Commerce Department said sales of new homes fell 3.3% in May, contrary to economists’ expectations of a 2.3% gain. Furthermore, April’s sales were revised downward to a 0.2% drop instead of the 1.2% gain originally reported.

Other recent economic reports, including higher factory orders, more construction starts and higher personal incomes in May, have indicated an end to the recession that began last July and the beginning of a turnaround.

The building industry insists that the market for home sales bottomed out in January, when sales fell to a seasonally adjusted annual rate of 414,000 units.

Sales bounced back in February, up 17.9% and rose 0.6% in March before the back-to-back declines in April and May. Even so, sales in May were at a seasonally adjusted annual rate of 474,000--14% higher than in January.

“I’m betting this is not a double-dip phenomenon for the housing market,” said Dave Seiders, chief economist for the National Assn. of Home Builders, referring to the chance that sales might again begin falling as they did throughout almost all of 1990.

The Economy New-Home Sales Decline

* Indicator: May sales of new single-family homes.

* What it did: Fell 3.3% in May, the second-consecutive monthly decline. The departments of Commerce and Housing and Urban Development also revised downward their earlier estimates for February, March and April. Sales in February rose 17.9% rather than the 18.1% reported earlier. March sales advanced just 0.6% rather than 1.0%, and April sales actually fell 0.2% rather than rose 1.2%.

* What it means: Analysts said the figures show that the housing market is weaker than previously thought. Most analysts believe that the housing industry recession ended in January, when new-home sales plummeted 10.8% to a seasonally adjusted annual rate of 414,000, the lowest since the 1981-82 recession.

* Highlights: Sales of single-family homes in May totaled a seasonally adjusted annual rate of 474,000 units, down from 490,000 a month earlier. New-home sales for the first five months of the year were 16.1% below the same period last year.

New-Home Sales May, ‘91: 474 April, ‘91: 490 May, ‘90: 535

Source: Commerce Department