U.S. homebuilder confidence sank to a 15-year low in May as lenders made it more difficult for borrowers to qualify for mortgages and order cancellations mounted, the National Association of Home Builders said Tuesday.

The NAHB/Wells Fargo Housing Market index dropped three points to 30 in May, matching the 15-year low set in September 2006, the group said.

Economists polled by Reuters had forecast the index would stay at April's 33 reading. The index stood at 46 last May.

Readings below 50 mean more builders view market conditions as poor rather than favorable.

Builder confidence has eroded each month since reaching 39 in February, before defaults and foreclosures started escalating on loans to borrowers with sketchy credit histories.

"The crisis in the subprime sector has infected other parts of the mortgage market as well as consumer psychology, and as a result the housing outlook has deteriorated," NAHB Chief Economist David Seiders said in a statement accompanying the index.

NAHB projects that home sales and building will not start improving until late this year. Early stages of a rebound will be "quite sluggish," the group said.

"Builders are feeling the impacts of tighter lending standards on current home sales as well as cancellations, and they are bracing for continued challenges ahead," NAHB President Brian Catalde, a home builder from El Segundo, California, said in the statement.

SUBPRIME SPILLOVER

Several dozen companies have closed shop or gone bankrupt in the past year in the subprime sector.

"There still are tremendous uncertainties regarding our baseline forecast going forward, owing largely to the subprime crisis that is having widespread effects throughout the mortgage market," Seiders said.

All three of the NAHB's component indexes fell in May, as they did the prior two months.

The gauge of current single-family home sales dropped two points to 31. The index of sales expected in the next six months dropped three points to 41, and the prospective buyer traffic index slid four points to 23 in May.

Builder confidence eroded in three of the four regions, rising only marginally in the Midwest.

Builder sentiment had been trending higher since its September trough. The upturn came at a cost, though, as builders tossed in valuable incentives like free pools and basements to sweeten the deal for buyers and move unsold homes from inventories.

Paring the unusually large supply of unsold homes is essential for a sustained housing rebound, most economists agree.