The $8,000 first-time homebuyer tax credit made spring home sales look great and a lot of cheerful ink about the residential real estate market is being spilled. Now we can see the hangover coming with mortgage applications down 40% in May to the lowest level since April 1997.

The tax credit, as I have repeatedly argued, was nothing more than a Cash for Clunkers applied to the housing market. It artificially inflated demand by stealing future sales and pushing them further up the calendar. It did not create qualified buyers; it merely incentivized qualified buyers to act immediately instead of later this year or next year.

I thought home sales would fall after the end of the $8,000 tax credit but 40% is HUGE! Gosh, I hope Arizona isn’t that bad.

More here in a good short piece from CNBC, “Double Dip a Done Deal.”