Mortgage rates may have fallen below 6%, but builders say most consumers are still too worried about the economy to buy a new house right now.

"November was abysmal," says Steve Palmer, chief financial officer for Bowen Family Homes in Duluth, Ga. "Our sales were just barely positive for the month and down 90 percent year over year."

Buyers are "totally paralyzed about what is going to happen to their dwindling assets," says Steve Romeyn, managing partner of Windsong Properties, a small active adult builder in Atlanta. They're fretting about the falling value of their home. They're wondering how safe their own jobs are, given the 500,000 positions lost in November alone.

"Fear is a major factor in buyers' minds today," says Steve Doyle, president of Brookfield Homes' San Diego division. "For most people, fear is all they need to stay on the sidelines and do nothing. For others, fear doesn't keep them out of the game—it just keeps them from making a decision."

Such paralysis is hitting builders hard, both directly and indirectly. At Jim Chapman Communities in Atlanta, the company's prospect list remains strong and buyers are still interested in the builder's active adult homes. But there's a problem. "Our biggest obstacle to our business is that our customer has a house to sell," says Kelly Dempsey, vice president of sales and marketing for the Atlanta-based builder, which specializes in active adult. "After five, six, seven months, they become discouraged and pull the house off the market."  As a result, the company's sales have suffered. The builder expected eight sales in November; it got three.

The need to sell a previous home has also been a drag on sales at The Green Cos. While direct mail, e-mails, and holiday events have all generated traffic for the New England builder, they haven't necessarily resulted in sales because of the previous home factor. "Many folks are coming to look, but only those with homes sold or under contract are ready to take advantage of the great deals available," says Dan Green, president of the Newton Centre, Mass.-based firm.

Entry-level builders say they can't get first-time buyers to sign on the dotted line either, but for different reasons. "Many of our buyers are first-time homeowners, and with the disappearance of the [seller-funded] down-payment assistance programs, it put many of our potential buyers out of the market because they do not have adequate funds to make the required down payment," says Tom Daddario, vice president of sales and marketing at Standard Pacific Homes in Jacksonville, Fla. "The other issue is availability of credit. It has become very difficult to get a loan for anyone who does not have near-perfect credit."

Steve Power agrees. "It seems like banks are looking for any reason not to complete the transaction," says Power, director of sales for Desert View Homes in El Paso, Texas, where he says traffic has been steady in November and December. He says his Christmas list includes "more normalcy" in the credit area, "which would refuel the [economic] engine. No one is advocating where we were before, but I think the pendulum has swung too far the other way."

Today's far tighter credit guidelines and the end of seller-funded DPA are certainly affecting Bowen Family Homes. "We had no sales under $200,000 last month," Palmer says. "The first-time buyer is gone."

That's not the case in all markets, mercifully.

In Charlotte, N.C., and Indianapolis, builder C.P. Morgan has a new marketing and direct-mail campaign geared specifically to renters: "More square feet. Less money." The slogan, which highlights the lower cost of owning relative to renting right now, seems to be gaining traction. "We did twice the sales in Charlotte [in the past few weeks] that we did in November," says Steve McFarland, CEO of C.P. Morgan.

And, the only pocket of hope for Meritage Homes' Phoenix division has been first-time home buyers, which Meritage has been enticing with homes priced between $100,000 and $200,000. If those prices sound frighteningly low, it's because they are. "You have to realize it has been really bad here," says John Bargnesi, vice president of sales.

Those who are looking for a home are also looking for a serious bargain. Year-end buyers generally expect a deal, and builders typically offer promotions intended to unload as many homes as possible by Dec. 31, but this year, many buyers are really looking for rock-bottom pricing. "People want a steal," says Rosemary Messina, vice president of sales and marketing at ICI Homes in Daytona Beach.

Falling home prices are part of the reason buyers are reluctant to commit right now. They don't want "to make a purchase until the market has hit bottom," says Sue Goodrich, vice president of sales for Cachet Homes, a luxury builder in Scottsdale, Ariz. That's for sure. "Anticipation that builders will drop prices further in 2009" is currently a major factor in buyers' decision-making process, agrees Rob Parker, senior vice president of sales and marketing at Regis Homes in California, where sales associates are working hard to persuade prospects to purchase now, not later.

Regis does offer a significant incentive to buy now; the builder will pay buyers' mortgage payments for six months, giving customers the chance to either rebuild their savings or cover mortgages on two homes if their previous house has not sold by the new home's closing. 

Parker says he and his staff remind would-be buyers that such deals won't last forever. "We … communicate that current incentives and price reductions will be gone after the end of the year, and now is the time to act. If they have been looking to buy at the bottom, this is it."

Alison Rice is senior editor, online, at BUILDER magazine. Senior editors John Caulfield, Pat Curry, and Jenny Sullivan also contributed reporting to this article.

Learn more about markets featured in this article: Phoenix, AZ, Atlanta, GA, Charlotte, NC.