updated 7/1/2010 12:55:48 PM ET 2010-07-01T16:55:48

The number of buyers who signed contracts to purchase homes tumbled in May, a sign the housing recovery can't survive without government incentives.

Punctuating the point, construction spending also fell in May amid a slump in home and commercial building.

The National Association of Realtors said Thursday its seasonally adjusted index of sales agreements for previously occupied homes dropped 30 percent in May from April. The index fell to 77.6 from 110.9. May's reading was the lowest dating back to 2001.

The index also was down 15.9 percent from the same month a year earlier.

The index provides an early measurement of sales activity because there is usually a one- to two-month lag between a sales contract and a completed deal.

The sharp declines were widespread. Pending sales dropped by 33.3 percent in the South, by 32.1 percent in the Midwest, by 31.6 percent in the Northeast, and by 20.9 percent in the West.

Federal tax credits helped to boost home sales this spring. First-time homebuyers could get a credit of 10 percent of the purchase price up to $8,000, while homeowners who bought and moved also could get 10 percent up to $6,500.

The deadline to get a signed sales contract was April 30. It was widely expected that sales would flag, but such a large decline in sales is surprising.

Economists surveyed by Thomson Reuters had expected the index would fall to 98.4.

There had been hints that the falloff could be worse than expected.

Last week, new home sales for May dropped 33 percent to the slowest pace in the 47 years records have been kept. And it was the largest monthly drop on record.

Meanwhile, the Commerce Department said construction spending dropped by 0.2 percent, after rising by a downwardly revised 2.3 percent in April. Analysts expected a steeper drop.

The decline was driven by a 0.4 percent decrease in construction spending on new homes and apartments. That follows a 5 percent jump in April. A federal government tax credit for homebuyers expired April 30. The department previously reported that new home construction fell by 17 percent in May.

Government spending on highway and other infrastructure projects rose by 0.4 percent, the third straight month of gains.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Video: Pending home sales drop 30 percent

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