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Homebuilders Sentiment Index Sinks to 16-Year Low

A key measure of industry sentiment on the U.S. market for new homes fell to its lowest point in more than 16 years, a trade group said Tuesday, as builders struggled with rising inventories of unsold houses across the country.

The National Association of Home Builders/Wells Fargo housing market index, which tracks builders' perceptions of current market conditions and expectations for home sales over the next six months, fell to 24 this month, the lowest reading since January 1991, the NAHB said.

Wall Street economists had expected a reading of 27, according to the consensus forecast of economists surveyed by Thomson/IFR.

The index is based on a survey of residential developers nationwide. It was the fifth straight monthly decline.

Index ratings higher than 50 indicate positive sentiment about the market. The seasonally adjusted index has been below 50 since May 2006.

"The single-family housing market is still in a correction process following the historic and unsustainable highs of the 2003-2005 period," David Seiders, the group's chief economist, said in an e-mailed statement.

Seiders said he expects sales to rebound by year-end and new home construction to start recovering by early next year.

The index has fallen every month since March, as demand for new housing slumped amid rising interest rates and a spike in the number of defaults among borrowers with weak, or subprime, credit. Freddie Mac, the government-sponsored mortgage company, reported last week that 30-year fixed-rate mortgages averaged 6.73%, just below the highest point reached this year.

Higher mortgage rates and tighter lending standards lessen demand for big homebuilders such as D.R. Horton, Pulte Homes, Lennar, Centex and Toll Brothers.

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Shares of those five companies, the largest U.S. homebuilders by market value, are down sharply this year.

New homes represent about 15% of total home sales. Last week, the National Association of Realtors projected new home sales would rise slightly next year, but still remain below 2006 levels.

The Realtors' trade group forecasts new home sales of 865,000 this year and 878,000 in 2008, both of which are below the nearly 1.1 million new homes sold in 2006.

The Commerce Department reported last month that sales of new homes fell in May for the fourth time in the past five months. The median price of a new home sold in May was $236,100, down 0.9% from the price a year ago.

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