Purchases of new homes in the United States fell in May to the lowest point in 16 years after a tax credit expired, according to a Purchases of new U.S. houses plunged in May by the most in 16 years after a tax credit expired April 30, according to an article by Shobhana Chandra in today's edition of bloomberg.com.

New-home sales, tabulated on contract signings, fell 19 percent to an annual pace of 410,000 last month, according to the median estimate of 76 economists surveyed by Bloomberg News.

In order to qualify for a government incentive worth up to $8,000, a purchase agreement had to be signed by April 30.

The end of the tax advantage means the market will cool until employment picks up enough to lift incomes, brace confidence and contain foreclosures, the article maintained, adding that "A lack of inflation and concern over jobs and housing are among reasons Federal Reserve policy makers today may reiterate a pledge to keep interest rates near zero in coming months."

The article quoted Harm Bandholz, chief U.S. economist at UniCredit Group in New York, that "The housing market will be much weaker in the absence of the tax credit," adding that "Building activity is needed to support the economic recovery and that isn't going to pick up for quite some time. The Fed is in no hurry to raise rates."

Economists' forecasts ranged from 300,000 to 530,000, after a 504,000 rate in April. Last month's projected drop would be the biggest since January 1994.

"A report yesterday showed sales of previously owned homes unexpectedly fell in May, raising the risk the retrenchment following the end of the tax incentive will be deeper than anticipated. Existing house purchases, calculated when a contract closes, dropped 2.2 percent to a 5.66 million annual rate, the National Association of Realtors said," the article observed.

New-home sales, it continued, are considered a timelier barometer of the market than purchases of previously owned homes, which account for about 90 percent of the housing market.

"Other data show the market is starting to stumble. Housing starts in May declined by the most since March 2009, and building permits, a sign of future construction, fell to a one- year low, figures from the Commerce Department showed. The National Association of Home Builders/Wells Fargo confidence index for June fell by the most since November 2008. The number of mortgage applications filed to purchase houses dropped this month to the lowest level since 1997, according to data from the Mortgage Bankers Association.

Builders are also concerned that the Gulf oil spill and European debt crisis are hurting buyer confidence. Toll Brothers, the largest U.S. luxury homebuilder, said deposits have been running 20 percent behind the year-earlier period the past three weeks.

Hovnanian Enterprises Inc., the largest homebuilder in New Jersey, said orders fell 17 percent in the quarter ended April 30 from a year earlier, and contract signings slowed in May, indicating the tax credit helped pull some sales forward.