WASHINGTON - Rising mortgage rates, deepening affordability issues, and the retreat of investors/speculators from the marketplace are prompting single-family home builders to further adjust their perspectives on the new home market, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) for May. The HMI declined six points from an upwardly revised reading in the previous month to hit 45 for the latest report, its lowest mark since mid-1995.

"Based on historical experience, particularly the 1994-1995 episode, the pattern of movement in the HMI is not inconsistent with the orderly cooling-down process we're projecting for home sales and single-family housing starts in 2006," said David Seiders, NAHB's chief economist. "We expect new home sales to be off by 12 percent from the record posted in 2005. Single-family starts, 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 percent from the 2005 record."

Derived from a monthly survey that NAHB has been conducting for nearly 20 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as "good," "fair," or "poor." The survey also asks builders to rate traffic of prospective buyers as either "high to very high," "average," or "low to very low." Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view sales conditions as good than poor.