After new home sales rose 27% in March and yesterday’s news that new home construction was up 5.8% in April, we pointed out that the real estate market is not doing as well as depicted by the general mainstream consensus.

Today we learn that there may not be as many home buyers as many thought:

“Purchase applications plummeted 27 percent last week and have declined almost 20 percent over the past month, despite relatively low interest rates. The data continue to suggest that the tax credit pulled sales into April at the expense of the remainder of the spring buying season. In fact, this drop occurred even as rates on 30-year fixed-rate mortgages continued to fall, and at 4.83 percent are at their lowest level since November 2009,” said Michael Fratantoni, MBA’s Vice President of Research and Economics.

The $8,000 new home buyer tax credit expired in April, and as we rightly pointed out, in a previous opinion, this would lead to fewer new homes being sold. Without government stimulus, the real estate market will move into auto-correct mode, as it should.

We blew a huge real estate bubble over the last 10 years, and it’s time for it to deflate. This is going to happen whether or not the Federal government gets out of the way. We can have prices deflate now, or they can continue to print trillions in real estate stimulus which will eventually lead to price declines in “real” dollar terms even as the US dollar goes through inflationary depreciation in nominal terms.

Now is not the time to buy a house, but for those interested, there may be a “sweet spot” coming for the right properties at the right price in the near future. More on this later.