Builders were not very bullish in July, less bullish than they have been since the original home-buyer tax credit was first introduced.

The National Association of Home Builders/Wells Fargo Housing Market Index(HMI) retreated to a reading of 14 in July, down from a downwardly revised16 for May. It was the lowest reading in the index since it registered a 14 in April, 2009.

Each of the HMI's component indexes was down. The component gauging current sales conditions fell two points to 15, while the sales expectations index for the next six months edged down one point to 21 and the traffic of prospective buyers index fell three points to 10.

Regionally, the HMI results were mixed, with the Northeast, which the NAGHB noted was prone to wide swings due to a small sample size, posting a seven point gain to 23. The Midwest was up a point to 15. The South was down five points to 14, and the West shed five points to a reading of 9.

Any reading in the index or its components over 50 indicates a positive outlook, below 50, negative. The lowest level on record was a reading of 8 posted in January, 2009.

"This month's lower HMI reflects a number of underlying market conditions that builders are seeing, including hesitant home buyers, tight consumer credit, and continuing competition from foreclosed and distressed properties that are priced below the cost of construction," said David Crowe, NAHB chief economist. "The pause in sales following expiration of the home buyer tax credits is turning out to be longer than anticipated due to the sluggish pace of improvement in the rest of the economy."

The NAHB is now projecting that new home sales will increase 10% in 2010 from 2009.

The HMI missed analyst expectations for a reading of 16. David Goldberg, home building analyst at UBS, noted that the drop was partly attributable to a drop of 35.7% in the West, which was partially offset by the 43.8% gain in the Northeast.

"We continue to believe fundamentals in the housing market are approaching a trough," Goldberg wrote in a research note. "We anticipate continued uncertainty over the next few months." He added, "This should ease, however, toward the end of the year as signs of stabilization--and gradual recovery--become more evident."