Builders are again looking sullen over the state of the housing market in May, with the National Association of Home Builders/Wells Fargo Housing Market Index falling back three points to the cyclical low of 30 reached in September, 2006.

"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. There still are tremendous uncertainties regarding our baseline forecast going forward, owing largely to the subprime crisis that is having widespread effects throughout the mortgage market."

The index is based on a survey in which NAHB 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 May. The index gauging current single-family sales slipped two points to 31, while 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.

Three of four regions posted declines in the May HMI. The Northeast posted a six-point decline to 32, while the South posted a four-point decline to 33 and the West posted a three-point decline to 32. The Midwest eked out a one-point gain, to 23.