New home sales dropped to its lowest level on record in May, as potential buyers stopped shopping for homes during the first month following the expiration of the homebuyer tax credit.

New home sales fell 32.7 percent to a seasonally adjusted annual rate of 300,000 last month, down from a downwardly revised 446,000 in April as released by the Commerce Department in a report Wednesday. Year-over-year sales plunged 18.3 percent.

This is the slowest sales pace since the Commerce Department began tracking data in 1963. The prior record was set in September 1981, when new homes sold at an annual rate of 338,000. It also was the largest monthly decline on record. Sales have now dipped 78 percent from their peak in July 2005.

This has erased the home sales surged in March and April when homebuyers scrambled to sign contracts ahead of the April 30 tax credit deadline.

The government report showed that the median price of new homes sold in May was $200,900 which was down less than 1 percent from April but a 9.6 percent down compared to May 2009.

An estimated inventory of 213,000 new homes was for sale at the end of May, the lowest inventory level in more than 40 years. This is an 8.5 months of inventory at the current sales pace up from 5.8 months in April. Six months of new homes inventory is considered normal.

Sales decline was most evident in May as sales decreased by more than 50 percent; the Northwest registered a drop of about a third. Sales in the South and Midwest fell by about 25 percent.