NPM installing modules to application root

I messed something up and I've done my best to fix it, but no luck.

Whenever I run 'npm install' on a new node project, it installs all of my dependencies to the root of the application instead of in /node_modules/ like you'd expect in a default application.

For example-

My package.json

{
  "name": "hello-world",
  "description": "hello world test app",
  "version": "0.0.1",
  "private": true,
  "dependencies": {
    "express": "3.x"
  }
}

When I use 'npm install' I end up with this:

I've tried setting my PATH like in this solution: How to use package installed locally in node_modules?

but that didn't seem to do much. Help?