"The plunge in housing starts in May underlines that a sustained housing rebound has yet to get under way," said economist Nigel Gault, of IHS Global Insight Inc., of Lexington, Mass. "The improvement in starts through April was driven by the extended tax credit, which expired April 30. Now, the credit is gone."
Said economist Joel L. Naroff, of Naroff Economic Advisers, of Holland, Bucks County: "The housing-market excesses brought the economy to the brink, and it was hoped this sector would help get us out of the mess we are in. That does not look like it is going to happen.
"It will take more than government incentives for the market to get back to normal," Naroff added.
Although interest rates remain low - fixed 30-year mortgage rates are under 5 percent - and prices have declined enough since the peak of the national real estate boom in 2006 to make purchases affordable, Gault said credit remained tight and the housing market continued to be overstocked.
David Crowe, chief economist of the National Association of Home Builders, said: "No doubt, a certain amount of building and buying activity that would have taken place in May was pulled forward to accommodate the [tax-credit] program's end date, which is why we have projected some softening of the numbers."
Employment is the bigger issue underlying a housing-market recovery, economists agree. Naroff, Gault, and Moody's Economy.com chief economist Mark Zandi said they expected the nation's job situation would show a gradual improvement in the second half of this year and have a positive effect on housing.
"If history is a guide, what happens with jobs will matter the most to the strength of the housing rebound," said Eric S. Belsky, executive director of the Joint Center for Housing Studies at Harvard University.
