Ongoing concerns about subprime-related problems in the mortgage market caused builder confidence about the state of housing demand to decline three more points in May, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). With a May reading of 30, the HMI returned to the lowest level in its current cycle, which was hit previously in September 2006.

“Builders are feeling the impacts of tighter lending standards on current home sales as well as cancellations,” said Brian Catalde, NAHB president and a homebuilder from El Segundo, Calif.

“The crisis in the subprime sector has infected other parts of the mortgage market as well as consumer psychology, and as a result, the housing outlook has deteriorated,” said NAHB chief economist David Seiders. “We’re now projecting that home sales and housing production will not begin improving until late this year, and we’re expecting the early stages of the subsequent recovery to be quite sluggish.”

All three component indices declined in May. The index gauging current single-family sales slipped two points to 31. The index gauging sales expectations for the next six months fell three points to 41, and the index gauging traffic of prospective buyers fell four points to 23. An overall HMI score of more than 50 indicates more builders view sales conditions as good than poor.

The one saving grace throughout the housing market slump has been the prospect of remodeling work. However, even the NAHB’s Remodeling Market Index (RMI), which runs quarterly, reported declining numbers. The current market conditions index slipped from 48.2 to 46.1; however, future expectations posted a small bump up to 46.5 from 46.0.     EC