An early pulse check on the health of housing following the elimination of down payment assistance (DPA) programs on Oct. 1 indicates that the impending ban failed to motivate people to purchase new homes before the deadline. In fact, both traffic and sales were at depressing lows leading up to the cut-off date, suggesting that builders may be looking at more pain ahead.

According to Wachovia Capital Markets' September Neighborhood Watch Survey, traffic levels were their lowest level at any point during the survey's eight-year history. Just 8% of sales managers surveyed said traffic levels were better than expected, marking another historical survey low, while 52% reported worse-than-expected traffic numbers.

Sales figures were hardly much better. Twenty-three percent said sales were better than anticipated--a level on par with August results--but the big shock came from those reporting softening sales. Roughly 49% of respondents said sales were weaker than expected, setting a record high for the survey.

Among sales managers, 38% said the DPA ban negatively affected sales, while 53% said it had zero effect on sales numbers; 9%, on the other hand, cited a positive boost to sales.

Pricing declines also continued, according to the sales managers surveyed. Roughly one in four respondents reported base home price declines during the past 30 days. The bright spot--if but a glimmer--is that the looky-lous appear to be out of the market, leaving just serious buyers out visiting communities.

With the expected September blip in sales failing to materialize, the outlook for the remainder of the year has darkened, especially as one sales tool has been taken off the table. Roughly two-thirds of survey respondents reported using DPA to help buyers finance their home purchases; among those respondents, an average of two out of five buyers used the seller-funded down payment help.

"CQ4 may prove the weakest climate for new-home sales since production home building effectively began in the late 1940s," said Wachovia's housing analyst Carl Reichardt in the survey's research note.

Sales managers also attributed feeble sales to customers' inability to sell their existing homes and a tightening of mortgage financing.

However, FTN Midwest Securities Corp. analyst Jay McCanless would argue that perhaps the financing situation is not as dire as it would seem. In a research note from October 10, he pointed out that FHA mortgages are available to qualified buyers with a requisite 3.5% down payment. He also pointed out that FHA applications and loan approvals have been rising since 2007.

"Since the increases in applications and endorsements imply future sales, we view these data points as beneficial for our home builders," McCanless wrote.

Moreover, he said the only negative fallout he saw from the reinstatement of down payment requirements is that "buyers have become savvier and price conscious about add-ons such as appliances and décor."

Either way, home builders are going to be facing additional pricing pressures in the months ahead.