WASHINGTON (MarketWatch) -- U.S. home builders are turning increasingly pessimistic about their business after home sales dried up when a federal subsidy expired, according to the latest survey by the National Association of Home Builders.

The NAHB/Wells Fargo housing market index fell two points to 14 in July, down from a downwardly revised 16 in June. It's the lowest since April 2009, the NAHB said Monday.



At 14, the index shows that about one in seven builders has a favorable view of the housing market. And builders' views on prospective sales were the gloomiest since March 2009.

"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," said David Crowe, chief economist for the builders' advocacy and lobbying group.

The decline in the builders' index in July "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," Crowe said.

Still, Crowe said he expects sales to rise about 10% this year, citing low mortgage rates, affordable prices and favorable demographic trends. Read the full release on the NAHB's Web site.

Economists had been looking for a two-point drop in the builders' index, down to 15 from June's original reading of 17, according to a survey conducted by MarketWatch. See our complete economic calendar.

The index, which peaked at 72 more than six years ago, has been below the breakeven point of 50 for 51 consecutive months and it bottomed at a record-low 8 in January 2009.

After more than two years of government support to buyers, the federal tax credit recently expired. Buyers needed to have signed a contract on a home by the end of April and now have until the end of September to close the deal.

Sales of new homes fell 30% in May after the tax credit expired, U.S. data showed. Housing starts fell 10%.

Over time, the NAHB index is correlated with changes in the government's data on housing starts, which will be released for June on Tuesday. Economists are expecting a 3% decline in starts to a seasonally adjusted annual rate of 575,000 in June, which would be down about 75% from the peak in 2006.

Details

All three components of the NAHB's index fell in July: The index for current sales dropped two points to 15; the index for future sales edged down one point to 21; and the index for buyers' traffic came in at 10, down three points.

Builder sentiment deteriorated in two of four regions.

It fell five points to 9 in the West, the lowest since April 2009. It also dropped five points in the South, to 14, the lowest since March 2009.

Sentiment rose one point in the Midwest to 15, and it increased seven points in the Northeast to 23.