The National Association of Home Builders/Wells Fargo gauge decreased six points to 34 this month, according to data out Thursday. That was lower than all estimates in a Bloomberg survey of economists.

High mortgage rates have pummeled the housing market this year, worsening an affordability crisis that's pushed out many prospective buyers. However, Treasuries have rallied in recent weeks on speculation that the Federal Reserve is done raising interest rates, which has caused borrowing costs to retreat somewhat.

"While builder sentiment was down again in November, recent macroeconomic data point to improving conditions for home construction in the coming months," said NAHB Chief Economist Robert Dietz. "Given the lack of existing home inventory, somewhat lower mortgage rates will price-in housing demand and likely set the stage for improved builder views of market conditions in December."

While the recent decline in financing costs has been welcomed by buyers and builders, developers are still extending a variety of sales incentives. Some 36% of builders reported cutting prices in November, the highest level in a year.

The report showed declines in measures of current and expected sales, as well as a gauge of prospective buyer traffic. Sentiment fell in three of four regions, dropping to the lowest level this year in the South and West.

The headwinds facing the housing market are also putting pressure on home-improvement retailers. Analysts expect both Home Depot Inc. and competitor Lowe's Cos. to report their first simultaneous declines in full-year revenue growth since fiscal 2010.