U.S. home building craters after tax break expires

Single-family permits drop 10% to lowest in a year
Housing starts fell 10% to a seasonally adjusted annual rate of 593,000 in May, the lowest level since December. The details were even worse, as starts of single-family homes plunged 17% to a seasonally adjusted rate of 468,000, the lowest in a year.

It was the largest percentage decline in single-family starts since 1991.

Housing starts were up 7.8% compared with May 2009, but are down more than 70% from the peak. Read the full report on the Census Bureau's website.

The tax credit and low mortgage rates have helped revive home sales and construction from the worst downturn since World War II. But with the credit expiring, builders face tough competition from foreclosures of existing homes, and buyers remain cautious about the job market. In some areas, prices are still falling.

Most economists expect the weakness to persist for the next several months. "The tax credit pulled housing transactions and construction activity forward into the spring from the summer, so the next few months will see activity remaining at a very low level," wrote Ian Shepherdson, chief U.S. economist for High Frequency Economics.

Building permits fell sharply in May for the second straight month, with total authorizations falling 5.9% to a 574,000 annual pace after falling 10% in April. Single-family permits fell 10% for the second month in a row to a 438,000 pace.

Permits for single-family homes -- considered by many analysts to be the best gauge of the health of the building market -- stood at the lowest level in a year.

Permits and starts had risen smartly earlier in the year, as builders rushed to meet the deadline for the federal home buyers' subsidy. To qualify for the credit, buyers had to sign a sales contract by April 30 and close the sale by June 30.

It would be rare to start construction in May and complete it by June 30.