updated 3/15/2010 2:32:28 PM ET 2010-03-15T18:32:28

Harsh winter weather and competition from deeply discounted foreclosures are putting a damper on sales prospects for U.S. homebuilders.

The National Association of Home Builders said Monday its housing market index, which tracks industry confidence, slipped this month by two points to 15, back to its January level.

Builders are seeing fewer prospective buyers and are feeling less optimistic about the likelihood of sales over the next six months, according to the survey of 477 builders.

Readings below 50 indicate negative sentiment about the market. The last time the index was above 50 was in April 2006.

The dour outlook comes as record snowstorms in January and February struck many parts of the U.S., keeping many would-be homebuyers too buried to shop for a home.

Sales of newly built homes plunged 11 percent to a record low in January, the third consecutive monthly decline. Sales of previously occupied homes, meanwhile, tumbled 7 percent — the sharpest drop since June.

In regions outside of the winter blast, homebuilders continue to struggle with competition from foreclosures and other sharply discounted homes.

"The continual flow of distressed properties priced below the cost of production is having an adverse effect on new-home appraisals and also making it tough for builders' customers to sell their existing homes," said NAHB Chairman Bob Jones.

While the pace of homes lost to foreclosures has been slowing, levels are still above last year's. The number of households facing foreclosure last month grew 6 percent from a year ago, according to RealtyTrac Inc.

High unemployment and tighter mortgage-lending standards are also keeping some buyers out of the market. And sales could also take a hit if mortgage rates start to rise once the Federal Reserve stops buying mortgage-backed securities at the end of this month.

Still, many homebuilders are betting buyers will turn out for the traditional spring shopping season and seize on tax credits set to expire at the end of April.

Several of the industry's largest companies, including Hovnanian Enterprises Inc. and Ryland Group Inc., have been buying land and ramping up construction.

"The inventory of new homes on the market is at an extremely low level, and we do expect a 25 percent improvement in new-home construction in 2010 over 2009 to rebuild inventory and meet expected pent-up demand," said NAHB Chief Economist David Crowe.

Experts forecast home sales will pick up in the near term, but weaken after tax credits expire.

The Washington-based trade association said its reading for current sales conditions slipped two points to 15. The index measuring foot traffic from prospective buyers fell two points to 10, while the index for sales expectations over the next six months fell three points to 24.

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