updated 6/18/2007 4:23:08 PM ET 2007-06-18T20:23:08

A measurement of industry sentiment about the housing market fell in June for the fourth straight month to the lowest point in more than 16 years.

Housing developers are being squeezed by tighter lending standards for borrowers trying to get mortgage loans. In response to weak demand, developers are cutting prices and offering buyer incentives to cope with a mounting supply of unsold homes, the National Association of Home Builders said Monday.

The trade group’s housing market index, which tracks builders’ perceptions of current market conditions and expectations for home sales over the next six months, fell to 28, the lowest reading since February 1991, the NAHB said.

Wall Street had expected a reading of 30, according to the consensus forecast of Wall Street economists surveyed by Thomson/IFR. Ratings higher than 50 indicate positive sentiment about the market. The seasonally adjusted index has been below 50 since May 2006.

The continuing slump is bad news for housing developers like Lennar Corp., D.R. Horton Inc., Pulte Homes Inc., Centex Corp. and Toll Brothers Inc., the largest U.S. homebuilders by market value.

The index has been sliding since March as demand for new housing slumped amid a rise in defaults for borrowers with weak, or subprime, credit.

“It’s clear that the crisis in the subprime sector has prompted tighter lending standards in much of the mortgage market,” David Seiders, the group’s chief economist, said in a statement, adding that rising interest rates have also eroded demand.

Home sales will continue to decline in the months ahead, he said, and housing starts are not expected to improve until next year, he said.

Sales of new homes, which represent about 15 percent of all home sales, surged in April, but median prices fell 11 percent from the previous month as builders slashed prices.

Mortgage giant Freddie Mac reported last Thursday that 30-year, fixed-rate mortgages averaged 6.74 percent,the highest level in 11 months.

Meanwhile, the troubled market for homebuyers with weak, or subprime, credit has hampered investors in mortgage securities who bought loans backed by subprime mortgages. Moody’s Investors Service said Friday it downgraded 131 mortgage investments tied to subprime loans.

Moody’s said the downgrades were a result of a higher-than-expected default rate among second mortgages issued to subprime borrowers last year and stemmed from “an environment of aggressive underwriting.”

The Mortgage Bankers Association reported last week that the percentage of payments that were 30 or more days past due for subprime adjustable-rate mortgages jumped to nearly 16 percent in the first quarter, the highest number on record. Foreclosure filings, meanwhile, were up 90 percent in May compared with last year, according to industry data firm RealtyTrac Inc.

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