Aug. 15 (Bloomberg) -- Confidence among U.S. homebuilders fell more than forecast in August to the lowest since 1991, as cancellations and more restrictions on lending took a toll.

The National Association of Home Builders/Wells Fargo index of builder confidence declined to 22, from 24 in July, the Washington-based association said today. A reading below 50 means most respondents view conditions as poor. The gauge has decreased for six consecutive months.

Mounting defaults on subprime mortgages are extending a slump in home building that is already the worst in 16 years, forcing real estate companies to slash prices and offer more incentives to buyers. Declines in residential construction will weigh on the economy until 2008, economists said.

``We've got further weakness to come,'' said David Sloan, a senior economist at 4Cast Inc. in New York, who accurately predicted the drop. ``The subprime crisis has given fresh momentum to the downtrend in the housing market.''

The confidence index was forecast to drop to 23 this month, according to the median estimate of 40 economists surveyed by Bloomberg News. Projections ranged from 20 to 26.

This month's reading is the second weakest since the survey's inception in 1985. It reached a record low of 20 in January 1991, when the housing market and the economy were both in recession.

A separate report from the National Association of Realtors today showed the median price for a single-family home in the second quarter fell in 50 of 149 metropolitan areas. Home sales, including condominiums, decreased 11 percent.

All Components Drop

The NAHB confidence survey asks builders to characterize current sales as ``good,'' ``fair'' or ``poor,'' and to gauge prospective buyers' traffic. It also asks participants to assess the outlook for the next six months. All three of the components fell to their lowest since 1991, today's report showed.

The group's measure of single-family home sales declined to 23, from 24 in July. The index of buyer traffic dropped to 16 from 19. A measure of sales expectations for the next six months fell two points to 32.

``It's not a terribly encouraging sign,'' David Seiders, chief economist of NAHB, said in an interview. ``The markets are highly suspicious of risk at this point. Builders know all of this and are reacting to it.''

Regional Breakdown

The confidence index slumped in three of four regions in August. The biggest decrease was in the Midwest, down five points to 14, followed by a drop to 30 from 32 in the Northeast. Confidence declined to 23 from 24 in the West, and held at 25 in the South.

The Commerce Department may report tomorrow that housing starts fell in July to a 1.4 million rate, the slowest in a decade, from a 1.467 pace the prior month, according to the median estimate in a Bloomberg survey. Building permits probably also fell.

Hovnanian Enterprises Inc., New Jersey's largest homebuilder, this week said it will take a charge of as much as $110 million in the quarter ended July 31. Its net contracts fell 24 percent from a year ago, and the cancellation rate jumped by more than a third.

Subprime mortgage defaults are already the highest in a decade, according to figures from Friedman Billings Ramsey Group Inc., an Arlington, Virginia-based real estate investment trust.

Federal Reserve policy makers, who left the benchmark interest rate unchanged at 5.25 percent at their Aug. 7 meeting, acknowledged that persistent declines in housing, credit restrictions and volatile financial markets have raised concerns about growth ``somewhat,'' according to their statement. They maintained that inflation is the biggest risk for the economy.

To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net.

Last Updated: August 15, 2007 14:53 EDT