It’s not a surprise, but it’s a pretty steep fall. Confidence among the 300 or so U.S. builders surveyed by the National Association of Home Builders slipped from 28 in June to 24 in July. This is the lowest level on the index since January of 1991, at the start of the Gulf War. Confidence jumped back immediately after the war was quickly “resolved,” but that will clearly not be the case now.

For those of you not familiar with the monthly index, it surveys three areas of sentiment: current sales, sales expectations and buyer traffic. Anything above 50 is considered “good”, below, “poor.” All of the segments declined this month, with sales expectations the highest and buyer traffic the lowest.

It’s the categories, I think, that really tell the story. We all know sales of new homes are pretty bad right now; it’s the sales expectations that are most important to the broader markets and the economy. Sales expectations were actually in the positive, at 53 just six months ago, but that was just before the subprime story surfaced. Now the number is 34, again, low, but the highest of them all. Where I fail to see the logic is that the vision of the future is high-ish, while the actual real buyer traffic is the lowest?

Dave Seiders, the NAHB’s chief economist, has always been a pretty straight shooter, telling it like it is, even when it’s downright bad. And as anyone fighting the pr machine at an industry association knows, that’s hard to be. Anyway, Seiders sounds a bit like he’s sipping the Kool-Aid this month: “In spite of these challenges, we expect to see home sales get back on an upward path late this year and we expect housing starts to begin a gradual recovery process by early next year. At that point, this market will be operating well below its long-term potential, providing plenty of room to grow in 2008 and beyond.”

With all of the factors bearing down on housing these days, from the old affordability issue to tightened credit, higher interest rates and a complete lack of buyer confidence, I think Seiders’ forecast is a bit much. Yes, housing will come back, but there’s an awful lot of nasty work to be done in the meantime. Just ask the builders.

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