Luther needs a lot of translation from that situation and time and place -- that context -- over to ours today.
I take the best way to take what Luther could mean in that quote is that we must be honest to realize we are sinners, and realize we are saved by grace. Admitting that we sin (being honest, reality), and then relying on Grace, real faith, as we must.
See,
Luther presumed confession would continue!
As in 1 John 1, and James 5.
But, looking back at the 16th century, it was a time when it was crucial to emphasize the fact we can't earn salvation with our own deeds, as in Ephesians chapter 2, verses 8 and 9 -- so it was needed at that time, to highlight and emphasize verses 8 and 9, even without a need to talk about verse 10.
Even though verse 10 is the direct continuation of 8 & 9, even part of them --
8 For it is by grace you have been saved, through faith—and this is not from yourselves, it is the gift of God— 9 not by works, so that no one can boast. 10 For we are God’s handiwork, created in Christ Jesus to do good works, which God prepared in advance for us to do.
Today is not like 1517, and verse 10 is today no longer can be presumed, but instead is sorely
needed now, because of some modern ideas that rely on ignoring such verses to the peril of those hearing those ideas (as shown for instance in Matthew ch 7, verses 21-27 ).