Home Builders' Index Falls
To a 15-Year Low in July

Home-builders' confidence plunged to a 15-year low in July, reflecting growing worries about rising interest rates and declining affordability, the National Association of Home Builders said Tuesday.

The NAHB/Wells Fargo housing-market index fell 3 more points to 39 in July, the lowest since December 1991. A reading of 50 would mean sentiment is balanced equally among builders who think the market is good and those who think it's poor.

The index peaked at 72 in June 2005 and has fallen in 11 months since then. It's the fastest decline in the 21-year history of the index, which has had a fairly good record of predicting the number of new homes started.

Ahead of the report, UBS economists said that the index is "signaling more weakening in starts than has been reported to date."

Housing starts have fallen about 14% since the peak at the beginning of the year. New-home sales are down about 9.7% from the peak last July.

The Commerce Department will report on housing starts for June on Wednesday. Economists are looking for a 3.6% decline to 1.89 million, according to a survey conducted by MarketWatch.

Construction has led, directly and indirectly, to about 40% of job growth since 2003, according to Joseph LaVorgna, an economist for Deutsche Bank. "As housing-market activity slows further in coming months, we are likely to see construction payrolls turn from being a significant contributor to employment growth to a drag," he said.

In July, all three components of the home-builders' index fell. Current sales index fell to 43 from 47, the expected sales index dropped to 46 from 51 and the traffic of potential buyers index fell to 27 from 29.

The decline shows "growing builder uncertainty on the heels of reduced sales and increased cancellations," said David Seiders, chief economist for the home builders.

Mr. Seiders said that builders are worried that the Federal Reserve will drive interest rates even higher. He added that the index's movement is historically similar to the 1994-95 period, when the Fed tightened and the housing market cooled.

Sentiment of builders in the West, who have been the most optimistic, plunged 9 points to 51. Sentiment fell 5 points to 36 in the Northeast and dropped 4 points to 21 in the Midwest. Sentiment improved to 50 from 48 in the South.

Chief economist Joshua Shapiro of MFR said home builders may now be too pessimistic. "There is undoubtedly a price correction going on in many parts of the country, and we may take the current results as more indicative of home builders realizing that prices have been too high to sustain home building at the recent high pace, rather than that orders are about to collapse."

Email your comments to rjeditor@dowjones.com.