Economists had predicted the index would be unchanged from May's 30 reading, based on a Reuters survey. Readings below 50 mean more builders view market conditions as poor rather than favorable.
"It's clear that the crisis in the subprime sector has prompted tighter lending standards in much of the mortgage market, and interest rates on prime-quality home mortgages have moved up considerably during the past month along with long-term Treasury rates," said NAHB Chief economist David Seiders.
The NAHB expects home sales will erode "somewhat further," and improvement in housing starts is unlikely until early next year. Housing should be a drag on economic growth through the rest of this year, the group said.
"Builders continue to report serious impacts of tighter lending standards on current home sales as well as cancellations, and they continue to trim prices and offer a variety of non-price incentives to work down sizable inventory positions," said NAHB President Brian Catalde, a home builder from El Segundo, California.
Builder confidence has fallen every month since the index reached 39 in February, before defaults and foreclosures started escalating on loans to borrowers with blemished credit.
A year ago in June the index stood at 42, versus this month's 28.
Long-term interest rates have shot up in the past few weeks as hopes of the Federal Reserve cutting rates has faded.
Inflation worries helped spur the biggest weekly spike in mortgage rates in three years last week, sending average 30-year loans to 6.74 percent, the highest in nearly a year, according to U.S. home funding company Freddie Mac.
All three of the NAHB's component indexes fell in June, as they did the previous three months.
The gauge of current single-family homes sales dropped to 29 from 31, the group said. The index of sales expected in the next six months fell to 39 from 41 and the prospective buyer traffic measure declined to 21 from 22.
Three out of four regions posted declines. The Northeast posted the only increase, but the three-point rise only reversed half of May's drop.
All regions are down from a year ago. The West by far is down the most, with its 27 reading less than half the 60 of June 2006.
Home price surges in the West were among the nation's biggest earlier in the decade. The price spikes spawned the growth of riskier non-traditional and subprime loan products aimed to get borrowers into homes they might not otherwise be able to afford.