Home Builder Confidence Falls

Home builder sentiment slumped to an 11-year low in May amid rising mortgage rates, declining affordability and the retreat of speculators, the National Assn. of Home Builders said Monday.

In a separate report, the nationwide median price for a previously owned single-family home rose 10% to $217,900 in the first quarter from $197,600 a year earlier, according to the National Assn. of Realtors. It was the smallest increase in a year.

Sales of previously owned single-family homes and condominiums fell 1.5%, the second straight quarterly decline, to a seasonally adjusted annualized pace of 6.8 million from 6.9 million in the fourth quarter, the Realtors said. Transactions fell 4.7% after reaching a record high in the third quarter.

Home prices declined in several U.S. cities, including Boston and Cincinnati, for the first time in at least 15 years, the Realtors said.

As for home builder sentiment, the NAHB-Wells Fargo housing market index fell 6 points to 45 in May -- the lowest level since mid-1995 -- from an upwardly revised 51 in April, the group said.

Economists polled by Reuters had predicted the index would drop to 49, which would have been the lowest level since the downturn that immediately followed the Sept. 11, 2001, attacks on New York and Washington.

Readings above 50 mean more builders view market conditions as favorable than poor.

“Based on historical experience, particularly the 1994-1995 episode, the pattern of movement in the [index] is not inconsistent with the orderly cooling-down process we’re projecting for home sales and single-family housing starts in 2006,” NAHB Chief Economist David Seiders said in a statement.

The group predicts that new-home sales will slide 12% this year from record sales of 1.28 million units last year.

Building of single-family homes, “supported by large builder backlogs of unfilled orders and reconstruction in the wake of last year’s record-breaking hurricane season, should be down by about 7% from the 2005 record,” Seiders added.

Groundbreakings on new homes set an all-time annual high of 2.07 million in 2005.

“Any ... further setback is just going to continue to reinforce the picture, and people will then begin to question how big of a magnitude we’re going to see in terms of a correction,” said Glenn Haberbush, economist at Mizuho Securities USA.

“But at this point, I think we still have to go with the assumption that it’s going to be relatively orderly,” he added.

Builder confidence eroded in every region in May, the NAHB said. It declined 3 points in the Northeast to 47, 2 points in the Midwest to 30, 6 points in the South to 51 and 8 points in the West to 61, the group said.

In another report, the Federal Reserve said Monday that U.S. domestic banks eased standards and terms for commercial and industrial loans in recent months, but that lending standards on commercial real estate loans were unchanged.

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Bloomberg News was used in compiling this report.