Builder confidence is at its lowest level in more than 16 years, according to the latest survey by the National Association of Home Builders and Wells Fargo.

The NAHB’s Housing Market Index (HMI) declined four points in July, to 24 — the lowest level since January 1991, the group said. A number over 50 indicates more builders see sales conditions as good than poor.

The index was last above 50 in April 2006, and has fallen every month since hitting a high for the year of 39 in February.

The group blamed a surplus of unsold homes on the market, ongoing concerns in the subprime mortgage arena, and affordability issues associated with tightened lending standards and higher interest rates, for the erosion in builder confidence.

“The bottom line is that the single-family housing market is still in a correction process following the historic and unsustainable highs of the 2003-2005 period,” said NAHB Chief Economist David Seiders in a statement. “Builders are actively trimming prices and offering buyer incentives to work down their inventories, but meanwhile there is a large supply of vacant existing homes on the market, and affordability problems persist despite efforts to attract buyers.

The index is made up of five components — builder perceptions of current single-family home sales, sales expectations for the next six months, and prospective buyer traffic. All three components declined in July.

The current sales index declined five points, to 24, and the sales expectations index declined by the same amount, to 34. The index gauging traffic of prospective buyers declined three points, to 19.

All four regions of the country posted drops in HMI, with five-point declines in the Northeast (to 31) and South (to 26), with the Midwest slipping one point to 19 and the West down three points to 25.

Click here to see a graph of the HMI between 1995 and 2007.


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