U.S. home-builders’ confidence collapsed in August, falling to the lowest level since February 1991. The NAHB/Wells Fargo housing market index dropped by seven points to 32 in August, from 67 one year ago and a peak at 72 in June 2005. All three components of the home-builders’ index fell. Current sales index fell to 36 from 43, the expected sales index dropped to 40 from 46 and the traffic of potential buyers’ index fell to 21 from 27. It’s the fastest decline in the 21-year history of the index, which has had a fairly good record of predicting the number of new homes started.

“Two factors are coloring builders’ perceptions of the market right now — rising sales cancellations and substantial growth in inventories of both new and existing homes,” said David Seiders, chief economist for the home builders’ industry group. “These factors are largely the result of an increasing number of potential buyers adopting a ‘wait and see’ attitude because of uncertainty about where the housing market is headed. Speculators are fleeing the market”, he said.

Of course, this resulted in a jamming of the home-builders’ stocks. Presumably on the theory that things can’t get worse. Right.

The big rally and jam today, especially in the tech stocks, is probably the 58th. “Fed is done” rally, justified by the weak PPI this morning. However, it is clear that this is really one more straw in the wind showing that the economy is rolling over. Deflation is not bullish for the market.