Homebuilder index hits 16-year low

WASHINGTON -- Confidence among US home builders fell this month to the lowest since February 1991 as interest rates climbed and delinquencies surged.

The National Association of Home Builders/Wells Fargo index of sentiment declined to 28 this month, from 30 in May, the Washington-based association said yesterday. Readings below 50 mean most respondents view conditions as poor. Economists surveyed by Bloomberg News forecast the gauge to stay unchanged this month.

Home builders are losing money as they cut prices to stem a slide in sales amid stricter standards for getting mortgages. Builders have scaled back projects to work off bloated inventories, a sign housing construction will weigh on growth for the rest of the year, economists say.

"There will be continuing declines in home building through the second half" of this year, said Robert Mellman, an economist at JPMorgan Chase Corp. in New York.

JPMorgan Chase correctly forecast the drop in the home building index. The bank's economists now project residential construction will fall at a 7.5 percent annual rate in the second half, compared with a previous forecast of a 2.5 percent drop.

The median forecast of 35 economists surveyed by Bloomberg was for the index to stay at 30. Predictions ranged from 28 to 32.

The group's measure of single-family home sales fell to 29 from 31. A gauge of sales expectations for the next six months declined to 39 from 41.

Federal Reserve policy makers last month acknowledged that the housing recession will hold down growth longer than they had anticipated. At the same time, officials have kept their outlook for moderate growth in the overall economy as consumer spending gains and manufacturing accelerates.

"The environment is still very tough for builders," Joshua Shapiro, chief economist at MFR Inc. in New York, said before the report. "There is still a lot of inventory out there, and higher mortgage rates certainly don't help."

Thirty-year mortgage rates at the end of May averaged 6.37 percent, rising further to an average 6.74 percent at the end of last week, according to Freddie Mac, the second-largest purchaser of US mortgages.

Yesterday's report further showed that confidence fell in three of the four US regions. The index declined to 27 from 32 in the West, to 19 from 22 in the Midwest and to 32 from 33 in the South. It rose to 35 from 32 in the Northeast.