WASHINGTON (

TheStreet

) -- The National Association of Home Builders' index of builder sentiment came in flat month-over-month as interest among potential buyers remained sluggish.

The NAHB said early Wednesday its confidence index, which measures builder perceptions of current single-family home sales and sales expectations for the next six months, came in flat at a reading of 16 in December, disappointing industry watchers who expected the index to tick up to 17, according to consensus estimates listed on

Briefing.com

.

>>Homebuilder Stocks: Behind the Numbers

Any reading below 50 indicates poor sentiment. The index has not been above 50 since April 2006.

The index's components include current sales conditions, sales expectations and traffic of prospective buyers -- two of which remained unchanged in December. The component gauging current sales conditions remained flat at 16; the component gauging sales expectations in the next six months was flat at 25; and the component gauging traffic of prospective buyers fell a single point, to 11.

"Builders are bracing themselves for a slow holiday season as a number of factors continue to cause uncertainty among consumers and builders alike," said NAHB Chairman Bob Jones, a home builder from Bloomfield Hills, Mich. "While the

housing market index adjusted for seasonal factors, the typical cold-weather slowdown in sales activity is being accentuated by ongoing weakness in the job market, the rising number of foreclosures and short-sales, and very challenging credit conditions for both builders and buyers."

"The steady but low level of the HMI reflects the fact that builders and consumers have yet to see consistent signs that the economy is improving," noted NAHB Chief Economist David Crowe. "The good news is that the index and its subcomponents remain above recent lows from the early fall. NAHB expects an improving job market this spring will help prospective buyers feel more confident and propel more sales activity in 2011. However, the continued problems that builders are facing in obtaining construction credit and accurate appraisal values could significantly slow the onset of a housing recovery."

Stocks in the homebuilder sector were mostly lower Wednesday.

The

SPDR S&P Homebuilders

(XHB) - Get Report

and

iShares Dow Jones US Home Construction

(ITB) - Get Report

, exchange-traded funds that tracks the sector, fell 0.6% and 0.5%, respectively.

Among individual builders,

D.R. Horton

(DHI) - Get Report

lost 1.7%,

PulteGroup

(PHM) - Get Report

1.6%,

Lennar

(LEN) - Get Report

1%,

Toll Brothers

(TOL) - Get Report

0.6% and

KB Home

(KBH) - Get Report

0.4%.

Hesitancy among potential home buyers had been a key driver of builders' low sentiment in recent months as uncertain consumers did not yet feel secure enough with the jobs market and overall economy to make such large purchasing decisions.

Near-record-low mortgage rates failed to spark robust demand for housing in recent months.

The Mortgage Bankers Association said Wednesday that

mortgage application volume fell last week as

mortgage rates

pushed higher.

Home mortgage loan applications decreased 2.3% on a seasonally adjusted basis in the week ending Dec. 10. The average rate on a 30-year fixed mortgage increased to 4.84%, from 4.66% in the prior week. It was the highest rate observed since early May and was the fifth consecutive weekly increase. Still, mortgage rates remain near all-time lows.

>>Mortgage Activity Eases as Rates Edge Up

The U.S. housing market continues to struggle and has been under tremendous pressure for some time. Demand fell further after the

expiration of federal tax credits for homebuyers earlier this year

.

Some potential homebuyers have decided to go ahead and sign contracts, hoping to lock in still-low rates. Homebuilder

Toll Brothers

(TOL) - Get Report

, which surprised investors with a return to year-over-year profitability in its fiscal fourth quarter, recently said deposits jumped 10% in the second half of November compared with year-earlier results.

While any mortgage demand can be viewed in a positive light, the still-struggling housing market continues to be plagued by sluggish demand, in part because of the tight credit market and the inability of many potential buyers to access the credit they need to finance a mortgage.

Many Americans suffer from negative equity, where the amount they owe on their home is higher than the value of it, making them unqualified for refinancing.

Still-depressed home prices do not seem to make it any easier. The S&P/Case-Shiller 20-city index of national home prices rose slightly in September but home prices across the U.S. fell 2% in the third quarter after rising 4.7% in the second quarter.

Homebuilders began construction on 11.7% fewer homes in October to an annualized rate of 519,000, far worse than the expected contraction rate. Applications for building permits, meanwhile, inched 0.5% higher to 550,000, from 547,000. Data for November's housing starts and building permits is due out next week, on Dec. 16. Economists' consensus call is for housing starts to increase to an annualized rate of 545,000, while building permits, a measure of future building activity, is expected to increase to a rate of 570,000.

>>Housing Starts Fall 11.7% in October

Data on housing starts and building permits for November is expected to be released on Thursday morning. Economists, on average, expect housing starts to rebound 5% to an annualized rate of 545,000. Building permits, a measure of future building activity, is expected to have increased 1.8% to a rate of 560,000.

-- Written by Miriam Marcus Reimer in New York.

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