WASHINGTON – Builders turned more pessimistic in July than forecast, a sign the expiration of a government tax credit will depress home construction.

The National Association of Home Builders/Wells Fargo confidence index dropped to 14 this month, the lowest level since April 2009, from 16 in June, data from the Washington-based group showed Monday. Readings lower than 50 mean more respondents said conditions were poor.

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Construction worker Brian Stocks unloads doors at a home being built in Springfield, Ill. "The housing sector is going to be in a hangover for a few months, and it looks like it will be quite a nasty one," said David Sloan, an economist at 4Cast Ltd. "This will weigh on growth in the third quarter and well into the fourth quarter as well." The Associated Press

The retreat in sales after the April 30 expiration of a deadline to sign purchase agreements and qualify for a tax credit worth as much as $8,000 is lasting longer than projected, the report said. With mounting foreclosures adding to housing inventory and unemployment forecast to end the year at 9.5 percent according to economists surveyed by Bloomberg News, a housing recovery will take time to develop.

“The housing sector is going to be in a hangover for a few months and it looks like it will be quite a nasty one,” said David Sloan, a senior economist at 4Cast Ltd. in New York, who correctly forecast the decline. “This will weigh on growth in the third quarter and well into the fourth quarter as well.”

The index was forecast to fall to 16 from a previously reported 17 in June, according to the median of 48 projections in the survey. Economists’ estimates ranged from 14 to 18. The gauge, which was first published in January 1985, averaged 15 last year.

The builders group’s index of current single-family home sales fell to 15 from 17. The gauge of buyer traffic dropped to 10 from 13 the prior month. A measure of sales expectations for the next six months decreased to 21, the lowest level since March 2009, from 22.

“We continue to see a lull in homebuying activity following the expiration of the federal home buyers tax credit program as many of the sales that would have occurred this summer were likely pulled forward to meet the program’s deadline,” said NAHB Chairman Bob Jones, a home builder from Bloomfield Hills, Mich. “In addition, builders are reporting continuing hesitancy regarding home purchases due to uncertainty in the overall economy and job markets.”

Housing starts fell 10 percent in May after the expiration of the contract-signing deadline the prior month. Starts probably dropped another 2.9 percent to a 576,000 pace in June, according to economists surveyed before a Commerce Department report today.

Economists forecast that a report Thursday from the National Association of Realtors will show purchases of existing homes declined 9.9 percent in June to a 5.1 million annual level, .

Builders compete with inventories of existing homes being swelled by mounting foreclosures. Home seizures climbed 38 percent in the second quarter from a year earlier, RealtyTrac Inc. said last week, putting lenders on pace to claim more than 1 million properties this year.

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