Home Builder Index Hits 16-Year Low

The NAHB/Wells Fargo Housing Market index dipped two points to 28 in June, the lowest level since February of 1991 when it bottomed out at 27.

The National Association of Home Builders cited a difficult lending environment along with higher interest rates as a source of the 16 year low.

“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.

Financing continue to be more difficult to obtain, and with home prices still near all-time highs, many potential homebuyers are being forced to cancel or hold off until prices become more reasonable.

“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.

Analysts had predicted the index would be unchanged from May’s reading of 30 based on a recent Reuters survey.

A reading below 50 means the majority of builders view market conditions as poor rather than positive.

All three of the NAHB’s component indexes fell in June, including single-family homes sales from 31 to 29, index of sales expected in the next six months fell to 39 from 41 and the prospective buyer traffic measure dipped to 21 from 22.

Just one year ago in June the index stood at 42.

The news is a grim sign for the housing market, and a good indicator that things are probably going to get worse before they get better, especially with inflation worries and interest rates on the rise.

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