Developers' expectations of future home sales fell this month, creating the threat of weakness until 2008.
The National Association of Home Builders said Tuesday its housing market index, which tracks builders' perceptions of current market conditions and expectations for home sales over the next six months, fell two points to 20 in September.
The drop, which matched the consensus forecast of economists surveyed by Thomson/IFR, was the seventh-straight monthly decline and the same reading as in January 1991 - during the last housing slump.
Index readings higher than 50 indicate positive sentiment about the market. The seasonally adjusted index has been below 50 since May 2006, and has fallen every month since March.
Executives of the nation's largest homebuilders, speaking at an industry conference in New York, gave a similarly gloomy picture.
"We're operating as though these conditions will continue for a long time," said Ara Hovnanian, chief executive of the Red Bank, New Jersey-based Hovnanian Enterprises Inc. Both Hovnanian and Beazer Homes USA Inc. on Tuesday said they are lowering prices to weather the downturn.
In the trade group's report, declining builder confidence was seen in all parts of the country. The index was lowest in the Midwest and highest in the Northeast.
Delinquencies among borrowers with weak, or subprime, credit have risen dramatically over the past year, causing lenders to cut back on mortgages to them.
The home builders group said worries about a buildup of unsold new homes and concerns about the mortgage market hurt builders' confidence. Some potential buyers, the group said, are trying to figure out how low home prices will sink before they commit to purchasing.
"Builders are expressing concern that home buyers are getting spooked by the many headlines they are seeing on mortgage market issues and their continuing effects on the housing market and home prices," the group's president, Brian Catalde, said in a statement.
However, the homebuilders' group projected the market will turn around in less than a year. David Seiders, the trade group's chief economist, said home sales should start trending up again by the middle of next year, and housing construction should recover by the third quarter of 2008.
The index has fallen every month since March, and big homebuilders such as D.R. Horton Inc., Pulte Homes Inc., Lennar Corp., Centex Corp. and Toll Brothers Inc. have been struggling.
The National Association of Realtors predicted last week that new home sales will fall 24 percent to 801,000 this year and forecast that construction of new homes will drop 24 percent to 1.37 million this year.