Homebuilder Index Falls to 16-Year Low on Subprime Sector Crisis

NEW YORK – Sentiment among U.S. home builders slid in June to the lowest level in more than 16 years as tighter lender practices and rising mortgage rates crimped sales, the National Association of Home Builders said Monday.

The NAHB/Wells Fargo Housing Market index fell two points to 28 in June, the lowest since it hit 27 in February of 1991, the group said.

Economists had predicted the index would be unchanged from May's 30 reading, based on a Reuters survey. Readings below 50 mean more builders view market conditions as poor rather than favorable.

"It's clear that the crisis in the subprime sector has prompted tighter lending standards in much of the mortgage market, and interest rates on prime-quality home mortgages have moved up considerably during the past month along with long-term Treasury rates," said NAHB Chief Economist David Seiders.

The NAHB expects home sales will erode "somewhat further," and improvement in housing starts is unlikely until early next year. Housing should be a drag on economic growth through the rest of this year, the group said.

"Builders continue to report serious impacts of tighter lending standards on current home sales as well as cancellations, and they continue to trim prices and offer a variety of non-price incentives to work down sizable inventory positions," said NAHB President Brian Catalde, a home builder from El Segundo, California.

Builder confidence has fallen every month since the index reached 39 in February, before defaults and foreclosures started escalating on loans to borrowers with blemished credit.

A year ago in June the index stood at 42, versus this month's 28.

Long-term interest rates have shot up in the past few weeks as hopes of the Federal Reserve cutting rates has faded.

Inflation worries helped spur the biggest weekly spike in mortgage rates in three years last week, sending average 30-year loans to 6.74 percent, the highest in nearly a year, according to U.S. home funding company Freddie Mac.

All three of the NAHB's component indexes fell in June, as they did the previous three months.

The gauge of current single-family homes sales dropped to 29 from 31, the group said. The index of sales expected in the next six months fell to 39 from 41 and the prospective buyer traffic measure declined to 21 from 22.