Dec. 15 (Bloomberg) -- Confidence among U.S. homebuilders in December stayed at a record low and their outlook for six months ahead worsened, signs the housing recession will extend into a fourth year.

The National Association of Home Builders/Wells Fargo index of builder confidence held at 9 this month, the Washington-based association said today. A reading below 50 means most respondents view conditions as poor.

Builders’ profits are shrinking as sales slide and mounting foreclosures add to a glut of unsold properties that’s driving prices lower. Many prospective home buyers are getting turned away by mortgage lenders that are resisting government efforts to unclog credit.

“The home-buying environment is still very difficult,” Ryan Sweet, an economist at Moody’s Economy.com in West Chester, Pennsylvania, said before the report. “Prices will continue to decline in coming months. Foreclosures are a major problem, as they’re adding more inventory to a housing market that is already saturated.”

The builder confidence index was forecast to rise to 10 this month, according to the median forecast of 36 economists surveyed by Bloomberg News. Projections ranged from 7 to 13. The gauge, which was first published in January 1985, averaged 27 last year.

The confidence survey asks builders to characterize current sales as “good,” “fair” or “poor” and to gauge prospective buyers’ traffic. The survey also asks participants to gauge the outlook for the next six months.

Single-Family Homes

The builders group’s index of current single-family home sales dropped to 8 this month, from 9 in November. The gauge of buyer traffic stayed at 7, while a measure of sales expectations for the next six months declined to 16, from 18 a month ago.

Confidence dropped in two of the country’s four regions in December. The biggest decrease occurred in the South, where the index fell to 10, from 12 in November, while the measure for the Midwest declined one point to 6. The gauge for the Northeast stayed at 11. The West’s reading rose to 7 from 6 last month.

“The crisis continues,” NAHB chairman Sandy Dunn, a builder from Point Pleasant, West Virginia, said in a statement today. “Congress and the administration must step in with substantial incentives to bring qualified buyers back to the table as well as effective foreclosure relief programs.”

Rising foreclosures are putting pressure on home values. Prices have fallen by about a fifth from their peaks in mid- 2006, according to the S&P/Case-Shiller home price index.

Mortgage Rates

Borrowing costs are coming down after the Federal Reserve pledged to buy debt of Fannie Mae and Freddie Mac, the world’s two largest mortgage buyers. The average rate on a 30-year fixed-rate loan dropped this month to the lowest since March 2004, according to the Mortgage Bankers Association.

Still, there are signs housing will remain in a slump well into 2009. The Commerce Department may report tomorrow that builders began work on homes in November at a record low annual rate of 736,000, according to the median estimate in a Bloomberg survey. Building permits probably also fell.

To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net.

Last Updated: December 15, 2008 13:00 EST