updated 10/16/2007 2:34:41 PM ET 2007-10-16T18:34:41

An index that tracks developers’ expectations of future home sales fell this month to a new record low, suggesting price cuts haven’t yet injected a spark into the slumping market.

The National Association of Home Builders said Tuesday its housing market index, which tracks builders’ perceptions of conditions and expectations for home sales over the next six months, fell two points to 18 in October, the lowest level since the index began in Jan. 1985. It was the eighth straight monthly decline.

The consensus forecast of economists surveyed by Thomson/IFR was for a reading of 19.

Index readings higher than 50 indicate positive sentiment. The seasonally adjusted index has been below 50 since May 2006.

The report came as Treasury Secretary Henry Paulson, in a speech at Georgetown University’s law school, said the housing market correction is persisting for longer than expected and appears likely to “continue to adversely impact our economy, our capital markets and many homeowners for some time yet.”

Declines in builder confidence were seen across the country, except for the Midwest, which increased by two points but remained the weakest region nationwide.

Builders, including Pulte Homes Inc. and Hovnanian Enterprises Inc., have been holding special promotional sales with deep discounts. Still, Brian Catalde, the trade group’s president, said in a statement that many potential buyers are hoping that even better deals will come along.

The group’s chief economist, David Seiders, said in a statement that many prospective buyers have “unrealistic expectations” about new home prices and about how much their current homes are worth in this market.

Seiders projected that sales will stabilize in the next six months and show “significant improvement” in the second half of next year.

Tighter lending standards, rising defaults among borrowers with weak credit and falling prices for existing homes have meant fewer buyers for struggling homebuilders such as D.R. Horton Inc., Lennar Corp., Centex Corp. and Toll Brothers Inc.

San Diego real estate tracking firm DataQuick Information Systems said Tuesday that home sales in formerly booming Southern California — an area chock-full of new housing developments — plummeted in September to the lowest level in two decades.

The median price for homes and condominiums in six Southern California counties fell 4 percent from a year ago to $462,000, as sales fell by 48.5 percent from last year, DataQuick said.

Nationwide new home sales are projected to fall to 805,000 this year, down 23 percent from 1.05 million last year, the National Association of Realtors said last week.

If that happens, it would be the worst year since 1997 — and sales are expected to drop a further 6.6 percent in 2008 from this year’s forecast, according to the Realtors group.

In August, new home sales tumbled to the lowest level in seven years, and the median nationwide sales price fell by 7.5 percent from a year earlier to $225,700. That was the biggest drop in percentage terms in nearly 37 years, the Commerce Department reported last month.

The median price is the middle point at which half sell for more and half for less.

In addition, foreclosure filings across the U.S. nearly doubled last month compared with a year ago, according to Irvine, Calif.-based RealtyTrac Inc.

Shares of D.R. Horton fell 47 cents, or 3.5 percent, to $13.11 in afternoon trading, while shares of Pulte fell 29 cents, or 2 percent, to $14.14. Shares of Lennar fell 40 cents to $23.23.

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