The Housing Market Index (HMI) of builder confidence dropped two more points in October to 18, the HMI's lowest point since NAHB and Wells Fargo began issuing the report in January 1985, and a slide of 41.9 percent compared with the same time last year.
The report says builder confidence for new single-family homes dropped dramatically due to continued problems in the mortgage market, high inventories, and the perceived effect that negative media reports are having on potential home buyers.
"Builders in the field are reporting that while their special sales incentives are attracting interest among consumers, many potential home buyers are either holding out for even better deals or hesitating due to concerns about negative and confusing media reports on home values," said NAHB President Brian Catalde.
NAHB Chief Economist David Seiders said home buyers are still trying to sort out market realities to get the best deals.
"Many prospective buyers may very well have unrealistic expectations regarding new-home prices as well as how much they can expect to receive for their existing homes," Seiders said.
"When the market is in proper balance, people can recognize a good deal when it comes along," he says. "At this point, they view a good deal as a moving target," he concluded.
Seiders said the positive news from today's report is that home builder expectations for sales conditions in the next six months held steady at 26. He said builders believe they are taking the right steps to reduce inventories and position themselves for the market recovery that lies ahead.
NAHB's housing forecast indicates that home sales may stabilize within the next six months and show significant improvement during the second half of 2008.
The monthly NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as either "good," "fair" or "poor." The survey also asks builders to rate traffic of prospective buyers as either "high to very high," "average," or "low to very low." Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view sales conditions as good than poor.