Builders are, in a word, sullen.

The National Association of Home Builders/Wells Fargo Housing Market Index fell two points to 22 in August, its lowest level since January 1991.

"There is no question that problems in the subprime mortgage sector have spilled over to other components of housing finance, including the Alt-A and jumbo markets, delaying a revival of the single-family housing market," said NAHB Chief Economist David Seiders. "However, the government-related parts of the mortgage market still are functioning well and the underlying economic fundamentals promise to remain solid for some time ­ providing support to the longer-run housing outlook."

All three components of the overall index indexes fell in August, with the single-family home sales expectation index dropping a point to 23, the index for sales during the next six months falling two points to 32 and the index gauging traffic of prospective buyers declining three points to 16.

Three out of four regions of the country posted declines: Two points in the Norteast to 30; five points in the Midwest to 14; and one point in the West to 23. The South remained stable at 25.

"Builders realize that issues related to mortgage credit cost and availability have become more acute, filtering some prospective buyers out of the market and prompting others to delay their decision to purchase a new home," said NAHB President Brian Catalde, a home builder from El Segundo, Calif. "Builders are responding by trimming prices and stepping up non-price incentives to bolster sales and limit cancellations, although we¹re dealing in a difficult market environment."

Seiders added, "We now expect to see home sales return to an upward path by early next year and we expect housing starts to begin a gradual recovery process by mid-2008. From there, the market will have plenty of room to grow in 2009 and beyond."

The index is based on a survey NAHB has been running for more than 20 years that measures 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 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.