Construction stocks including Pulte Homes, Lennar and KB Home all sagged Monday on worries over sequential declines in the NAHB Housing Index.

However, digging deeper into the NAHB report shows builder confidence was weakened by supply constraints tied to recession-era capacity cuts rather than an absence of demand.

"Many builders are expressing frustration over being unable to respond to the rising demand for new homes due to difficulties in obtaining construction credit, overly restrictive mortgage lending rules and construction costs that are increasing at a faster pace than appraised values," said Rick Judson, National Association of Home Builders, Chairman.