Economists polled by Reuters had forecast the index would slip to 35. Readings below 50 indicate more builders view market conditions as poor rather than favorable.
"The tightening of mortgage lending standards in connection with the subprime crisis has shaken the confidence of both consumers and builders, as reflected in this report," said NAHB Chief Economist David Seiders.
The subprime mortgage sector caters to borrowers with poor credit histories. The unfolding effects of this crisis has compelled NAHB to trim its forecasts of home sales and housing production for both 2007 and 2008, Seiders said in a release.
Seiders has reduced his forecast for new-home starts to an annualized rate of 1.44 million units in 2007 from the 1.65 million unit pace he expected earlier this year.
"While we still expect to see some improvements in housing market activity beginning later this year, the downside risks and uncertainties surrounding that forecast are considerable," he said.