The National Association of Home Builders/Wells Fargo Housing Market Index took an unexpected dip downward in June as builders in the South turned more pessimistic and dragged the rest of the nation down with them.

The index fell one point from May to 15 in June, but the drop was entirely due to a three point drop in the South to 15. The Northeast was up a point to 20; the Midwest rose a point to 15; the West posted a two-point gain to 14.

The decline sent most of the public builder stocks down near the close of trading, led by Standard Pacific (NYSE:SPF) with a decline of more than 9% to $2.16, KB Home (NYSE:KBH) off 6% to $13.24, M/I (NYSE:MHO) down 4.8% to $10.12, Hovnanian (NYSE:HOV) down 5.8% to $2.40 and Beazer down 4.8% to $2.38.

"Home builders are facing a few headwinds, including expiration of the tax credit at the end of November; a recent upturn in interest rates; and especially the continuing lack of credit for housing production loans," said NAHB Chairman Joe Robson, a home builder from Tulsa, Okla.

"As expected, the housing market continues to bump along trying to find a bottom," said David Crowe, NAHB chief economist. "Meanwhile, builders are taking their cue from consumers, who remain uncertain about the economy and their own situation. Builders are also finding it difficult to complete a sale because customers cannot sell their existing homes."

Two of three of the HMI's component indexes were unchanged in June, including the index gauging current home sales, which held at 14, and the index gauging traffic of prospective buyers, which held at 13. The index gauging expectations for the next six months declined a single point, to 26.

The dip coincides with the latest market update from John Burns Real Estate Consulting in Irvine, Calif., which said its most recent survey showed indicators of new home conditions improved very slightly but remain weak. That survey is based on reports from 306 home-building executives from more than 200 companies who reported that sales remained very weak in May and that prices continue to decline. A total of 2,221 new home communities in 95 unique metros were represented in the Burns survey.

"Builder contacts in a few locations are telling us that traffic and sales are off in the first weeks of June, and they suspect the end of the spring selling season may be near," said Jody Kahn, vp at John Burns Real Estate Consulting.

Kahn added, "We're also being told more often that appraisals are not supporting the home price. That's a significant additional challenge."

Burns CEO John Burns said he did not believe rising mortgage interest rates had yet affected the new-home market. "Clearly, it is not good for sales in the long term, but affordability remains excellent, so we don't think it will have a significantly negative impact if mortgage rates remain below 6%," he said.