West Leads Big Drop in Home Sales : Real Estate: Sales of new houses in the region plunged 34.4% in May.

Led by a huge decline in home buying in the West, nationwide sales of new single-family homes fell a surprising 5.6% last month, indicating that the anemic economic recovery is losing the support of the key housing industry.

The Commerce Department said Monday that the seasonally adjusted annual sales rate of 501,000 housing units in May was the lowest since September, 1991, when the rate was 499,000 units. The May sales decline, analysts say, was caused primarily by a 34.4% plunge in the West, which brought home sales in the region to the lowest level since July, 1982.

“This was one very bad month,” said Daryl Delano, an economist with Cahners Economics in Newton, Mass. “We’ve had three straight months now of housing sales that are lower” than the big increases in January and February.

The Commerce Department also revised its April housing sales figures to show a decline of 2.7% in that month, instead of the previously reported 1.3% increase.

Despite the May decline, housing sales are still ahead of last year’s pace. The Commerce Department reported that 257,000 new homes were sold in the first five months of 1992, compared to 218,000 in the same period last year.

But the drop in new home sales in the West concerned many analysts, who said activity has slowed markedly since the first two months of the year, when potential home buyers responded to low interest rates--below 8.5%--as well as the promise of new tax incentives for home purchasers.

But Congress failed to enact several White House budget proposals aimed at stimulating home buying, including President Bush’s proposal to offer first-time home buyers a $5,000 tax credit if they purchased a home by the end of 1992.

As a result, analysts who had predicted that May home sales would rise to an annual rate of 550,000 units said the drop in home sales could increase pressure on the Federal Reserve to cut interest rates again and give the sluggish economy a boost.

Mortgage rates are already near the lowest levels in 20 years, according to HSH Associates, a Butler, N.J.-based mortgage publishing firm. And some economists question whether a small cut would be enough to change many consumer minds about buying houses.

“At the beginning of the year the fear was that the housing market was getting stronger and people rushed to buy a home before it” became too expensive, said Delano of Cahners Economics. “But at this point there isn’t the same incentive. Things are not getting better quickly. People are saying, ‘Let’s not rush into this yet.’ ”

The change in consumer sentiment has many builders scrambling to find answers to the gloomy mood of would-be home buyers.

On Monday, Irvine-based National Survey Systems announced that Presley of Northern California, Bramalea and several other large California home builders had signed up NSS to survey home buyers to help builders better market their new subdivisions.

“With the ever-tightening market, builders have become much more concerned about market research,” said NSS President Robert Mirman, whose non-housing clients include Toyota, General Mills and IBM. “This was rarely done back in the 1980s.”

Not everyone believes that the decline in the new home market is as severe in the West as the government contends.

“The (home) builders we talk to are doing fine,” said James Z. Pugash, a longtime California housing analyst who is president of Hearthstone Advisors, a San Francisco real estate investment firm. “They are having good sales. I wouldn’t say there’s a gold rush out there, but they’re” doing fine.

The 34.4% sales decline in the West was partially offset by a 28.3% rise in the Northeast. But in the Midwest, sales dropped by 7.5%, while in the South they gained by 8.5%.

Not surprisingly, the average selling price of a new home fell in May to $143,200 from $143,700, while the median sales price dropped to $106,000. That was the lowest since July, 1987, when it stood at $105,000, the department said.

The median price, the level at which half the homes sold are cheaper and half are more expensive, was $119,900 in April.

New Home Sales Seasonally adjusted annual rate, thousands of units May, ‘92: 501 April, ‘92: 531 May, ‘91: 511 Source: Commerce Department