WASHINGTON (MarketWatch) -- Faced with the imminent expiration of a government subsidy for new buyers, U.S. home builders' mood turned more pessimistic again in October, a trade group reported Monday.

The National Association of Home Builders/Wells Fargo sentiment index fell to 18 in October from 19 in September. It was the first decline since June. The index bottomed at a record-low 8 in January; the index peaked at 72 more than four years ago.

The decline "will further boost worries about the sustainability of both the recent rise in housing investment and the rebound in prices we have witnessed," according to Drew Matus, an economist for Bank of America's Merrill Lynch.

Economists surveyed by MarketWatch expected the index to rise to 20. See Economic Calendar.

All three components of the index fell for the first time in nearly a year. Read the full report.

At 18, the home-builders' index shows that only about one in six builders has a positive view of the housing market. Over time, the index is highly correlated with the government's data on starts on single-family homes.

The Commerce Department will report on September housing starts on Tuesday, with economists surveyed by MarketWatch looking for a small gain to about 607,000 seasonally adjusted annual units from 598,000 in August.

Starts of single-family homes have risen 34% since January after builders cut production far below the sales rate. Inventories of unsold homes have now fallen to a 16-year low.

But builders still have trouble on the supply side. It's taking a record amount of time -- nearly 13 months -- to sell a home after it's completed. Foreclosures and short-sales have boosted the supply of existing home on the market as well.

Plea for subsidy

The builders put all their hopes on Congress passing an extension or expansion of the program that gives first-time buyers up to $8,000 toward the purchase of a home. Buyers need to close the sale on a home before Dec. 1 to qualify.

The expiration of the refundable tax credit "could derail the fragile recovery in housing just as it is starting to take shape," said Joe Robson, a builder from Tulsa, Okla., who is chairman of the contractors' trade group.

Not only are builders facing tough times getting financing to build or complete homes, he added, but also they're burdened by new, tougher rules for appraisals that require an independent view of home prices before mortgages can be underwritten.

Congress is considering legislation that would extend the tax credit. The Senate Banking Committee and the House Ways and Means Committee will hold hearings on the topic this week. There are several approaches being considered; the most likely is a bill in the Senate that would simply extend the current program through June 30.

Democratic leaders in both the House and Senate favor extending the subsidy, while the White House has neither pushed the idea nor is fighting it.

Critics of the tax credit say it is poorly targeted and wasteful, because many buyers who get the subsidy would have bought a home without it. Ted Gayer, co-director of economic studies at the Brookings Institution, figures extending the credit until June 30 would boost sales by 69,000, at a cost of $258,000 for each additional home sold.

Details

In September, the home-builder index rose in the tiny Northeast region, and fell in the other three regions. The index dropped four points in the West to 14.

Builders were more pessimistic about prospective buyers, and about current and future sales. The current sales index fell from 18 to 17. The future sales index fell from 29 to 27, the second straight decline. The buyers' traffic index fell three points from 17 to 14.

"Clearly, builders are experiencing the effects of the expiring tax credit on their sales activity, since it would be virtually impossible at this point to complete a new-home sale in time to take advantage of that buyer incentive before Nov. 30," NAHB chief economist David Crowe said in a statement.