The National Association of Home Builders/Wells Fargo Housing Market Index fell to a new low in October, down two points from last month to the lowest level it has registered since NAHB began the index in 1985.

Regionally, the index posted a four-point decline to 14. The Northeast and South each dropped a point, to 26 and 21, respectively; the Midwest posted a two-point gain to 15.

"Builders in the field are reporting that, while their special sales incentives are attracting interest among consumers, many potential buyers are either holding out for even better deals or hesitating due to concerns about negative and confusing media reports on home values," said Brian Catalde , NAHB president.

"Consumers are still trying to sort out market realities and get the best deals they can," said David Seiders , NAHB chief economist. ³Many 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. When the market is in proper balance, people can recognize a good deal when it comes along. At this point, they view a good deal as a moving target.²

While the current market index hit its nadir, builders apparently are convinced that things can not get much worse. Builder expectations for sales conditions in the next six months held steady at 26, indicating they expect at least some stability to return to the market.

"Builders believe they are taking the right steps to reduce inventories and position themselves for the market recovery that lies ahead," said Seiders."Indeed, NAHB's housing forecast indicates that home sales should stabilize within the next six months and show significant improvement during the second half of next year."

The 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.

Two out of three component indexes of the HMI declined in October. The index gauging current single-family home sales and the index gauging traffic of prospective buyers each declined two points, to 18 and 15, respectively, while the index gauging sales expectations for the next six months remained unchanged at 26.

Ara Hovnanian, CEO of Hovnanian Enterprises, said during an interview about builder confidence on CNBC that he expected that "we'll have a good full year of life along the bottom" before the housing market turns around. "The one wild card is a lot of this is psychological," he added. "There's been a lot of negative psychology out there, and the good news is, that can be turned around."

Hovnanian also said he did not expect large public home builders to get into serious financial trouble beyond "one or two," which he did not identify beyond saying "everyone knows who they are." He said he expected private home builders "are clearly going to be struggling."