The National Association of Home Builders/Wells Fargo Housing Market Index plunged to its lowest level in 16 years in June, reflecting an increasingly pessimistic view among builders that a turnaround is anywhere in sight.

The index fell two points from May to 28, its lowest point since Februrary, 1991, when the housing market, and the overall U.S. economy, were in recession. The NAHB attributed the decline in confidence to "ongoing concerns about subprime-related problems in the mortgage market and newfound concerns about rising prime mortgage rates."

It now appears that the subprime problem may grow worse. Moody's Investors Service on Friday took negative rating actions on 267 securities originated in 2006 and backed by subprime closed-end second lien mortgage loans.Ratings on 131 securities were downgraded, of which 111 remain on review for possible further downgrade. An additional 136 securities had their ratings placed on review for possible downgrade.

The Moody's action affects the bonds that are sold to back subprime lending.Over the weekend, Bear Stearns bankers were scrambling to recapitalize a fund that packaged subprime securities that has taken heavy losses of late.The net effect of the Bear Stearns and Moody's actions could further dry up the pool of money available to first-time and low- and moderate-income home buyers.

Meantime, rates on 30-year fixed mortgages were approaching 6.75% at the end of last week.

"Builders continue to report serious impacts of tighter lending standards on current home sales as well as cancellations, and they continue to trim prices and offer a variety of non-price incentives to work down sizeable inventory positions," said NAHB president Brian Catalde, a home builder from El Segundo, California.

"It's clear that the crisis in the subprime sector has prompted tighter lending standards in much of the mortgage market, and interest rates on prime-quality home mortgages have moved up considerably during the past month along with long-term Treasury rates," added NAHB Chief Economist David Seiders. "Home sales most likely will erode somewhat further in the months ahead and improvements in housing starts probably will not be recorded until early next year. As a result, we expect housing to exert a drag on economic growth during the balance of 2007."

Derived from a monthly survey that NAHB has been conducting for more than 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 either '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.

All three component indexes declined in June. The index gauging current single-family sales slipped two points to 29, the index gauging sales expectations for the next six months fell two points to 39, and the index gauging traffic of prospective buyers fell one point to 21.

Three out of four regions posted declines in the June HMI. The Midwest posted a three- point decline to 19, the South posted a one-point decline to32 and the West posted a five- point decline to 27. The Northeast recorded a three-point gain to 35 following a six-point loss in May.