Its forecast for the number of building permits issued is down to just 37,700.
Four years ago when times were better, nearly 209,000 permits were issued.
Builders say they haven't been selling as many homes since the state credit of $10,000 for buyers of new homes was used up in just four months.
"Starting mid-August until now, our sales have been cut by at least half, if not worse. So the sales pace has definitely slowed down without the attractiveness of the credit," said Layne Marceau of the California Building Industry Association.
The State Assembly failed to extend the credit this week. Given the state's financial crisis, some economists say that was a wise move, considering the last program cost $100 million.
"We want to ask ourselves whether more houses right now is really something we should be encouraging with our tax dollars," said Victor Stango of U.C. Davis Graduate School of Management.
"If anything, we probably have too many houses in California right now," Victor added.
But homebuilders say there's the multiplier effect with new construction; jobs are created and people buy new items for their house which all helps fill state coffers.
"They're definitely good to get us going again, and that's what we need at this time," said Marceau.
If new homes are having a tough time selling without the state tax credit, existing home owners are afraid of what the end of next month brings, which is when the federal first time home buyer credit is set to expire.
Tim Brandabur, a home seller, is worried because sales typically slow during the winter months. He says people will need an incentive in this economy.
"It makes all the difference in the world. Then somebody will be more willing to make the move and jump on the opportunity before the end of the year," said Brandabur.
Congress is currently considering extending that federal tax credit, and homebuilders will try to get California's program reinstated when the session reconvenes.