Thanks to the current credit crunch, where investors want no part of buying mortgages as an investment, home builders are having a harder time getting construction loans, would-be buyers are struggling to get mortgages, and home sellers can't find qualified buyers, the housing market downturn has further to go, says the National Association of Home Builders.

Speaking on a conference call today, NAHB CEO Jerry Howard first pointed to results of a monthly survey of home builders that shows 62 percent of builders are "reporting tighter lending standards affecting their business." In March, just 33 percent of builders said that tighter lending standards were impacting them.

Of those that said their business had been impacted, the average decline in sales caused by the perceived credit tightening was 31 percent, said Howard, compared with 15 percent lost business reported in March.

Overall, 36 percent of builders surveyed had contracts canceled due to a buyer's inability to qualify for a mortgage, up from 28 percent reporting the same problem in March.

"That clearly reflects the tighter lending standards," Howard said.

NAHB chief economist Dave Seiders noted the decline in the association's Housing Market Index, where a score of 50 suggests an equal number of positive and negative responses from builders over the current state of the housing industry. Down from its peak score of 72 in the middle of 2005, the HMI scored just 22 for August. Seiders lays the blame at the hands of the burst credit bubble.

"A lot of contraction here, and occurring largely this year because of tightening mortgage market conditions and not because of a real shortfall in employment or income growth," he says.

The types of mortgages being taken out is changing as a result. Adjustable rate mortgages, which once accounted for 40 percent or more of all mortgages used to buy homes during the boom, in July accounted for just 17 percent of new mortgages, Seiders said.

Home prices are also down, Seiders adds. The S&P/Case-Shiller U.S. National Home Price Index, released Tuesday morning, shows that house prices across the United States were down 0.9 percent from the first quarter of 2007 to the second quarter. But more importantly, home prices were down nationally 3.2 percent in the second quarter of 2007 compared to the second quarter of 2006.

"Since about the middle of 2005, we've seen a rapid deceleration of house values," Seiders said on Tuesday's conference call.

Sales of new single family homes have also shrunk. Seiders is now calling for a low in single-family new-home sales in the fourth quarter of 2007 of 800,000, a 38 percent decline from the market's peak in sales during the third quarter of 2005, Seiders said.

But, Seiders warns, due to problems in the mortgage market, things could yet get worse. If mortgages given to those with solid credit hold up, and if the elements of the mortgage market currently floundering regain stability, then there likely won't be any more problems. But that's a big "if," Seiders acknowledges.

"I'm worried it could even go further than that given the condition of the mortgage markets," he said. "It looked like in the second quarter we were actually moving up a tad, but given what's happening in some of the markets out there, we're looking definitely for another significant down leg in the second half of this year, maybe even into next year."

Seiders does offer a potential silver lining to his dark forecast. He now believes the Federal Reserve Board will cut its target rate to encourage lower interest and lower mortgage rates. Following news last week that the Fed cut the discount rate that it charges on loans made directly to banks, Seiders projects the Fed will cut its target rate from 5.25 to 5.0 in September, then to 4.75 in October. Seiders also did not rule out the possibility of yet a third rate cut in December

But that might not even be enough to stave off real disaster. Seiders now sees more and more of a chance that the housing downturn will drag the overall economy into recession. He now thinks there's a 33 percent chance of an economic recession, more of a chance than he was predicting just a month ago.

"The bottom line is: no matter what charts we talk about, the housing economy is down, it's hurting, and it does not look like it will bounce back as quickly as we'd hoped," Howard said.