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The housing data today are terrible and the market seems to think Thursday's earnings reports from home builders are bad, too.

Builders sold new homes at an annual pace of only 406,000 in June, way below the 504,000 first reported for May and down 8.1% from even the revised May pace of 442,000. The numbers are 12% below last year, well below consensus estimates of about 475,000. The key to the mess was an 18% drop in the South, the largest new-home market among the four regions Census reports separately.

The reason for the housing market's sustained woes is tough housing credit. Other factors like job worries and student loan debt have been discounted in recent months, as better studies have shown the payment burden from student loans actually declining for most people and today's report on jobless claims showing the lowest rate of layoffs since 2006.

If New Yorkers got laughs from the crank gubernatorial candidate four years back who became a YouTube sensation for complaining that "the rent is too damn high," we can all have a much grimmer riff now on the idea that the credit crunch is too damn tight.

Housing's issue is not interest rates, which are at their lowest since last July, according to Ellie Mae (ELLI). With rates falling again, even tepid wage growth isn't keeping people from affording homes.

It's becoming increasingly clear that the problem is credit, period. Federal Reserve Chair Janet Yellen and other officials have said banks are wary of making loans because they still fear that Fannie Mae (FNMA) and Freddie Mac (FMCC) will make them take back loans the government-backed finance companies buy from lenders if borrowers miss payments. The problem is Dodd-Frank rules that are still being interpreted and revised, and everyone from Yellen to Federal Housing Finance Agency chief Mel Watt agrees a fix is needed.

Even people with decent credit can't get homes. According to Ellie Mae, the average denied mortgage now is for a borrower with a credit score of 686, well above the subprime (620 or lower) level. Denied loan applicants proposed an average down payment of 18%, ample by historical standards. Their other debts -- cars, student loans, credit cards -- were generally higher than conservative guidelines allow, but on average they were shopping for house payments that fit their incomes, Ellie Mae said.

This is way different than the market for car loans -- the reason why cars' recovery hasn't been affected by slow wage growth or student debt, to name two oft-cited housing culprits. Car lenders are willing to take more credit risk and they are making it work. At Fannie Mae, less than 2% of new loans purchased are to borrowers with subprime credit. About a third of new-car buyers have shaky credit.  People with middling but not subprime credit are getting turned down for houses and driving away routinely with new wheels.

Tight credit and a weak recovery in parts of the South also seem to be hurting builders as they report earnings. Lennar (LEN) reported last month that sales in southeast Florida remain soft. D.R. Horton (DHI) reported its own regional problem, but in Chicago, where unemployment is still 7.5%. Horton, Meritage Homes (MTH) and Pulte Group (PHM) are all down on earnings reports today.

Meritage said second-quarter orders for new homes rose just 1% over last year, part of what MKM Partners analyst Megan McGrath said is a mixed picture. Only Horton, the nation's largest builder, has reported double-digit growth in orders, which signal how many homes it will finally sell later this year. But Horton shares dropped sharply after it said it was boosting sales incentives to move units.

"I'm watching all these stocks get killed. It makes me want to go to lunch,'' McGrath said.

The credit crunch coincides with (and may explain) weak sales in the South, where more people have bad credit. Several different sources confirm that states south of the Mason-Dixon line almost uniformly have credit scores below the national average. With the average credit score of loans now sold to Fannie Mae holding at 741, according to the most recent data, people with scores near statewide averages in Texas or Florida that hover below 700 are going to have some trouble.

Housing is once again a policy problem, demanding a solution from a deadlocked Washington. With the unemployment rate likely to go well below 6% by the end of the year and housing still stagnant, it's increasingly clear that job growth and low interest rates alone can't do the trick.

At the time of publication the author had no position in any of the stocks mentioned.

This article was republished with permission from TheStreet.