Look, for three years, the outspoken veteran home building company executives said the housing market was the worst they’d seen in their lifetimes. It could hardly come as a surprise to see unstimulated new-home demand revert to historical lows.

Remember, the absolute number of people who are out of a job is the highest it’s ever been, and the absolute number of homes in or headed for default is the highest it’s ever been as well. The multiplier effect of both of those trends hammers consumer spending, and bruised consumer spending translates into more pink slips.

So how could the new-homes number have eluded the economy’s wrecking ball once the U.S. government removed its tax support for purchases?

One of the more negative headlines, from blogger Calculated Risk, cites an all-time record low for June 2010, vs. a prior non-seasonally adjusted June of 1982.

Again, we’ll say that if you’ve got some of the sales associates who actually took deposits in May, June, or this month on new homes, you’d better do what you can to hang on to those sellers in the months ahead.

In the teeth of this adversity, small, medium-sized, and larger home building organizations have gotten yeoman’s work from their many-hat wearing associates.

Collectively, they’re turning inventory faster and they’ve ratcheted down both the absolute supply number (to 210K, down from 213K), and months’ supply, from 9.6 months to 7.6 months.

What’s more, analysts have observed the beginnings of a return to the market of first time buyers, as well as those in higher price points, indicating that contingency sales have begun to pan out for a number of folks in the new-home arena.

Even in the unlikely event that the unseasonally adjusted number of 1,000 new-home sales a day were to continue at its slow pace, and if the absolute supply number falls at the current level of 1.4% a month, we’ll be inside of six months’ supply by the end of 2010.

That’s hard work. And that sets up better times in 2011.

The very big question to think about, even if there’s little home builders can do about it, is job growth. A true housing recovery remains a ludicrous notion in the vacuum of a consumer-driven economic and jobs recovery, even if there are positives in home builders’ collective management of the supply of their wares.

Too, home builders can spark demand–like rubbing sticks together–if they can buy land cheap enough, which is not, for the most part, what they did in 2009 and the first part of this year.

Many of the finished lots purchased in the past 18 months were at rates that may reconcile to divisional operational overheads, but hardly pencil to a reset in the cost of homeownership that one may still reasonably expect after the dislocation and financial trauma of late 2008.

Strategically, just as home builders need–as a group–to learn more about who their home buyers are and what makes them tick, they’ve got to make strides on the buy-side of the equation as well.

When it comes to land buying, too often home builders get played for chumps. They are too easily played against one another, and too often they get tricked into not playing their own game.

Right now, for private home builders anyway, the ones to beat are not other home builders; the ones to beat are the banks. The banks hold (or rather, they’re mired in) assets, real and paper, for which they have no clue about how to get dollars. What they will get for the REO properties they’ve taken over from builders and developers are fines, headaches, taxes, lawsuits, lost money as entitlements expire, and grief.

A couple of home building companies–Lennar’s Rialto and Toll Brothers’ new Gibraltar unit–have set up to work with the FDIC at the bottom-dollar level to get value from holdings like this.

But, among banks who are still solvent, home builders may play at least a small role in their redemption from the hell of assets that can take on an evil life of their own if they’re not in the hands of someone who knows what to do with them.

Now that there’s beginning to be flashes of capital availability, home builders–particularly ones that can help banks work out of the myriad petty jams that some of their unintentionally acquired real estate holdings represent–may finally get their opportunity to buy low enough to sell something for a profit. 

At least banks have staffed up their special services departments, and they’re said to be moving real estate deals to resolution, versus playing extend and pretend possum with the assets.

It figures home builders would have to take on yet even more risk as investors in recovery before they’ve got true visibility on its arrival.  But that’s what it means when your industry sector is called the engine of the economy.

Somebody has to start spending money first, so hire a land expert who can get a bank out of a broken, messy, legally troublesome deal, and you’re on your way for dimes on a dollar.

“Normally, the FDIC would have put out an announcement by now, but they’ve been busy with a lot of issues these days,” said this executive, who asked to remain anonymous. “The press release may come as soon as Thursday this week. We think they’re paying about 30-plus cents on the dollar.”

Here’s an excerpt from an FDIC release on the award of another $898 million AmTrust pool of residential mortgages to a consortium of financial players led by Residential Credit Solutions, CarVal, and RBS Financial Products.

AmTrust bank failed on December 4, 2009, and the FDIC immediately entered into a purchase and assumption agreement with New York Community Bank, Westbury, New York, to assume all the deposits and approximately $9 billion of the assets. This transaction completes the sale of the majority of the remaining assets of AmTrust Bank.

• See related story from Big Builder’s Teresa Burney on Toll Brothers’ new Gibraltar unit.

Word is, the AmTrust 280 loan portfolio with an average of $6,000 per loan encompasses 1800 properties, primarily in the Nevada, Arizona, California, Florida, Georgia, and the D.C. Metro/Maryland markets.

The Oaktree-Gibraltar JV’s assumption is that, after combing through the 1800 properties, they–like Lennar’s Rialto–have an opportunity to profit at least three different ways on the financial disposition of the property assets covered under the loans.

• They earn management fees as they move some properties through to foreclosure and an ultimate sale;
• They can selectively sell properties to home builders or developers;
• They can rehab or develop the properties through the Toll Brothers operation and put more value on deals that may have failed sheerly due to lack of adequate capital access.

The Gibraltar-Oaktree JV, just like in the Rialto case, will have to cover its nut with the F.D.I.C. before it can write profits on to its balance sheet and flow them through to Toll Brothers’ Corp.

We hear that Oaktree’s deal with Toll Brothers taps into a different fund than the acquisitions joint venture it had formed last year with Ryland Homes. “Other home builders are not part of this AmTrust/FDIC deal,” according to the executive we spoke to.

Now that Lennar has triggered a financial skill-set it had developed during earlier downturns and Toll Brothers has established a captive unit to play in the distressed paper and hard asset arena, it may be a question as to whether other home builders explore adding such capabilities to their repertoire. This question surfaces especially as conventional home building operations continue to battle lack of visibility and low absorption rates.

No doubt public home building companies will explore all means possible to generate cash and write new profitable business onto their balance sheets, but most are set up with more limited financial resources and expertise than Lennar and Toll, and would have too much to learn too quickly to avail of the opportunities in so sophisticated a financial/legal game.

We’ve head KB Home is taking a look at partnering and that M.D.C. Holdings has had a conversation or two, but most companies will focus short term on opening stores and taking share, primarily from the nine out of 10 home buyers these days who are opting for a resale vs. a new home.

“Problem is, we’re competing with resales that were built in more and more cases in 2005 and 2006, so we have to do better than ever at getting our share,” said the CEO of one of the nation’s leading public home building companies.

Sound familiar for home building companies? They’d done just about all they can to shrink their balance sheets for the worst of the downturn periods, and now time is nigh to drive topline performance. Question is can they? As we listen to the earnings calls among home builders over the next two weeks, we’ll be keen to probe both the analysis and the plan each company puts in place to sustain their hard-won momentum.

Collectively, with a few exceptions, the public home builders behaved as if 2010 will ramp nicely into a fully-formed if modest demand cycle in 2011.

The economy, a little like the stubborn low-pressure weather system that has settled in for a petulant stay in the Atlantic off the Carolinas and has blanketed the mid-Atlantic coast with a several-week muggy heat-wave, seems to be challenged by inertial as well as dynamic forces.

The one manifest source of big demand for capacity globally is Asia, which is shifting from overheated to a more sustainable level of growth. Europe is day to day, given its debt and credit landmines, and the U.S. seems to be an equal mix of pluses and minuses, with the pluses losing steam even as the minuses seeming to find a more stable high ground.

Clearly too, debate over policy, action, or a decisive plan to cease interceding at the government level sharply, and antagonistically, devides those who are most outspoken about righting the what has gone off in the economy. The conversation in too many cases crosses the line of argument into ugly ideologue, unbecoming of the nation’s spirit of resilience, tolerance, and particular manner of blending disparate interests.

We’re with New York Times Op-Ed essayist Roger Altman in assessing the moment’s need for business and policy-makers to call a time-out on their dance of death, because together U.S. business and government have a few of the answers Main Street wants right now.

The tension between President Obama and the business community is hurting both sides and may hamper economic recovery. Closing that divide requires the business community to mute its criticism, and the administration to make personnel and policy adjustments. Neither should be hard.

The summer of 2010 may go down as the period–similar to many stock market crashes–that retests lowpoints of both consumer and business confidence that occurred as the financial system came unhinged in the Fall of 2008.

Robert Shiller, in the book “Animal Spirits” he co-wrote with George Akerlof, talks about a term that makes all the sense in the world right about now: “the confidence multiplier.”  At the center of the word confidence, Shiller notes, there’s a Latin word root “fido,” which means “I trust.”

It’s the Summer of 2010. No one can make the 2009 Obama $790 billion stimulus package bigger now than it was. No one can make the George W. Bush 2008 $200 billion tax and spending stimulus package bigger now than that was.

The question of yet another stimulus plan comes now amid heightened rancor, fear, and suspicion in the ramp-up to November’s mid-term elections. Whether more stimulus would instill or asphyxiate a confidence multiplier is likely to get lost in the heat-wave debate between “Austerians” vs. the “Stimulites.”

That’s why, in looking this week at the latest data for housing starts, permits, and existing home sales, it would be a good BS meter to put them into a trailing three-month bucket, and compare the latest three months to the same three-month period in 2009.

This way, one can filter out some of the artificial timing moves that show up in the single-month release, and perform analysis based on reality. (HT to a reader Marvin Chosky for this recommendation).

Here, from blogger Econ Grapher, is a line-up of key data releases expected this week in the U.S. and global markets. And don’t forget the parade of 2nd Quarter earnings we’ll also be attuned to.

Day	Time (GMT)	Code	Event/Release	Forecast	Previous
MON	8:00	EUR	Euro-Zone Current Account s.a. (euros) (MAY)		-5.1B
MON	14:00	USD	NAHB Housing Market Index (JUL)	16	17
TUE	1:30	AUD	Reserve Bank of Australia Meeting Minutes
TUE	5:00	JPY	Leading Index (MAY F)		98.7
TUE	6:15	CHF	Trade Balance (Swiss franc) (JUN)		0.82B
TUE	8:30	GBP	Major Banks Mortgage Approvals (JUN)	52K	51K
TUE	8:30	GBP	Public Finances (PSNCR) (Pounds) (JUN)	16.0B	12.0B
TUE	12:30	USD	Housing Starts (MoM) (JUN)	-2.8%	-10.0%
TUE	12:30	USD	Housing Starts (JUN)	577K	593K
TUE	12:30	USD	Building Permits (MoM) (JUN)	-0.7%	-5.9%
TUE	12:30	USD	Building Permits (JUN)	570K	574K
TUE	13:00	CAD	Bank of Canada Interest Rate Decision	0.75%	0.50%
TUE	22:45	NZD	New Zealand Net Migration s.a. (JUN)		250
WED	3:00	NZD	Credit Card Spending s.a. (MoM) (JUN)		1.9%
WED	8:30	GBP	Bank of England Meeting Minutes
WED	14:00	AUD	NAB Business Confidence (2Q)		17
WED	14:00	USD	Ben Bernanke Testifies to Senate Banking Panel
THU	3:00	NZD	ANZ Consumer Confidence Index (JUL)		122
THU	4:30	JPY	All Industry Activity Index (MoM) (MAY)	-0.4%	1.8%
THU	7:30	EUR	German PMI Manufacturing (JUL A)	58.0	58.4
THU	7:30	EUR	German PMI Services (JUL A)	54.5	54.8
THU	8:00	EUR	Euro-Zone PMI Manufacturing (JUL A)	55.2	55.6
THU	8:00	EUR	Euro-Zone PMI Services (JUL A)	55.0	55.5
THU	8:30	GBP	Retail Sales ex Auto Fuel (YoY) (JUN)	2.4%	3.4%
THU	9:00	EUR	Euro-Zone Industrial New Orders s.a. (MoM) (MAY)	-0.1%	0.9%
THU	12:30	CAD	Retail Sales (MoM) (MAY)	0.5%	-2.0%
THU	13:30	USD	Ben Bernanke Testifies to House Financial Committee
THU	14:00	USD	Existing Home Sales (MoM) (JUN)	-8.1%	-2.2%
THU	14:00	USD	Existing Home Sales (JUN)	5.20M	5.66M
THU	14:00	USD	House Price Index (MoM) (MAY)	-0.3%	0.8%
THU	14:00	USD	Leading Indicators (JUN)	-0.3%	0.4%
THU	14:00	EUR	Euro-Zone Consumer Confidence (JUL A)	-17	-17
FRI		EUR	EU European Bank Stress Test Results Due
FRI	1:30	AUD	Export Price Index (QoQ) (2Q)	12.0%	3.8%
FRI	8:00	EUR	German IFO – Business Climate (JUL)	101.5	101.8
FRI	8:00	EUR	German IFO – Expectations (JUL)	101.5	102.4
FRI	8:30	GBP	Gross Domestic Product (YoY) (2Q A)	1.1%	-0.2%
FRI	8:30	GBP	Gross Domestic Product (QoQ) (2Q A)	0.6%	0.3%
FRI	11:00	CAD	Consumer Price Index (YoY) (JUN)	0.9%	1.4%
FRI	11:00	CAD	Bank Canada CPI Core (YoY) (JUN)	1.9%	1.8%

Washington needs to do one thing loud and clear right now in its mission to improve America’s jobs outlook, and home builders and developers would do well to demand it from anybody in Washington who seriously plans to keep his or her job after early November.

No more stimulus programs that contain federal tax credit programs for home buyers. Over. Done. 

Especially now that financial regulation reform is about to go live, it is precisely the moment for housing’s industry leaders to insist that Congress, the Administration, and the Fed pipe down and allow the private sector to resume work to clear residential real estate values via the efficiency of market forces.

Author and behavioral economist Dan Ariely discusses procrastination at length in his work. Our human and cultural nature seems to predispose us to need deadlines to act, including in such important decisions as buying a home.

Clearly, after two administrations’ housing stimulus policies and the better part of three years of witnessing their impact, here’s what we can best tell about where those programs have left us.

• Stimulating demand has–in combination with reduced home building activity–accelerated the reduction of the surplus of new homes. This is positive.
• By the same token, stimulus–in combination with bank bailouts, and NOL carryback extensions–stalled real estate markets from behaving as they should have.
• Also, by changing, extending, and expanding the inclusiveness of the home buyer tax credits a number of times, potential home buyers have begun to think that if they go ahead and buy a home with no hand-out from Uncle Sam, they’ll look like a fool when a few months later, Congress passes another round of tax credits they could have qualified for.

After all this, we’re left with the exact opposite of pulling-buyers forward. Home buyers are confused. They might buy now, but what if Congress concocts yet another tax credit, amounting to thousands of dollars in a handout on a purchase later in the year or next year. Expectation that the “Lost Our Lease Clearance!” sale signs will be plastered across the storefront windows over and over and over again has fed into Americans’ habit of procrastination.

What’s more, policy–since 2008 at least–has become a genuine barometer of officialized fear. The more policy, the more grim the indications are with respect to the focus of that policy. So we’ve come to connect policy with “holy moly, things are really much worse than we even knew, so we shoud probably just sit tight.”

Industry leaders should unify and raise their voices in a clear call to action for Capitol Hill and the Federal government agencies. That action is simply and forcefully to assert their confidence that the market may be far from strong, but it’s strong enough to stand on its own two feet and work as it should. 

We only need to look back at how quickly, how badly things went from 2007 to 2008 to 2009 to begin to sense confidence that that kind of devastating destabilization has run its course.

But right now, as Americans procrastinate, the American domestic economic outlook dims. A sequence of events negative to property values, residential investment, consumer spending, corporate earnings, small business viability, and, ultimately, economic recovery goes into motion.

Why are Americans procrastinating now? Home mortgage rates, with a 4.6- handle on an 80% loan to value loan, are historically low. No, we mean historically historically low. Prices on new homes, a smidge over $200K median, are low too, especially for what you get in a new home these days.

Now too, supply–especially of new homes–is trending toward scarcity, an unheard of phenomenon for the better part of five years or so.

Let the battle of the theorists and economists rage on as to whether austerity or more stimulus is a better route with respect to influencing the direction of the GDP and its ability to create domestic jobs and  ratchet down unemployment.

A third of the way through an earnings season that had been anticipated to be frought with doubt, uncertainty, and diminishing returns, we’ve seen resilience in materials with companies like Alcoa, in technology, with Intel, and in financial services, with JP Morgan.

We’re also seeing signs of stabilization and resolve in some of the more worrisome Eurozone states, and calmer heads are now prevailing, essentially as heads of those states do one thing: express confidence by piping down.

Global demand will continue to be a bright spot if not the juggernaut it’s been; but it won’t redound to enough significant effect in our domestic jobs situation.

Focus needs to be on American jobs. If both Wall Street and Capitol Hill would do what they’re supposed to do on job creation and stop their death dance, local market economies would begin to improve.

An issue we don’t hear much about is the number of industry sectors that are passing through both cyclical and structural secular shifts in demand.

America became the pilot nation for a society that shifted supply and demand dynamics from what people need to what they want. The economics of meeting needs were subsumed by the algorithmically more glorious economics of meeting people’s wants.

We called that our quality of life, which is relatively high if not the highest among nations.

After the insanity, the pricetag in real dollars, the capacity, and the demand for what we want is in question. How many things, beyond what we absolutely need, can we afford these days as we deleverage our household balance sheets?

As home builders and developers, the task will be to persuade a procrastinator to stop doing that. You’ll want some help from the government though, which would come in the form of a clear, simple statement that no more home buyer tax credits are in the pipeline.

This note will graze across three themes that have cropped up and will recur here during the summer months: 1) limbo, 2) cash, and 3) demand.

Conclude what you may about the 40% of executives surveyed by Citi who say sales worsened, this albeit early reading tells us that the destabilizing impact of The Great Expiration of April 30 may have been overstated.  And why not, if it generates higher TV news ratings and a few more newsstand sales of newspapers? Being right for an instant and then wrong forever doesn’t seem to carry the clout with the press that it once did.

So, let’s look first at limbo. Fact is, if 40% of folks in the field of Josh Levin’s universe say sales didn’t get worse and 20% say they got better, we believe it’s fair to look at June as month number one in a series that already has gone some distance to dispel home builders’ worst fears–instead of a brand new cliff-dive, it’s a stabilizing, bounce-along-the-bottom month that no one could be ecstatic over, but by the same token, people can’t be too unnerved by either.

May unnerved because with the April 30 tax credit sunset came fresh flashbacks to second-derivative deterioration and a free-fall mentality that tapped into broader depressives like the Eurozone meltdown and the Gulf oil tragedy. June began to restore calm and resolve because, when you worked out the math of the tax credit demand stimulus, the numbers rightly added up to a necessary correction period of a few months.

What remains is spec to sell, incentive codes to crack, the down-and-dirty of shutting out all the noise of ideological economic psychobabble crossfire in favor of identifying, reaching, and meeting the need of “my buyer.”

In a 300,000-to-400,000 seasonally-adjusted new-home sales environment, the macro term “home buyers” is one thing: death. The CEO of a public home building company told us this with certainty: “There are enough of our buyers; we’re going to either succeed or fail on whether we get our buyers, who are out there even today.”

Surviving limbo is about your buyer. Your buyer will either lean toward continuing to rent, or toward a resale/distressed sale or not. He, she, or they, will have not just skin but flesh and bone to put in the game–see “Cash” segment below–and wants mostly to accomplish one goal with the purchase: Not to be taken for an idiot.

If you can make your buyer feel smart, you survive limbo. Operationally, of course, that means being very smart with the materials and services you pay for, which delivers your buyer more value for less. Broadly, shifting from the “funny money” to the “real money” era also means shifting from “something for nothing” expectations to  a “more for less” mentality.

Private home building companies survive another day or go away based on whether they close on one or two homes regularly, vs. lots of homes across a longer time span. Public home building companies have created a lot of pre-recovery buzz in the past 14 months with cash down on finished lots wherever they operate, especially California.

That impulsive lot grab phase is done now, and things are going to work differently for a while. Plotlines that will grab headlines but wind up being less important in any real sense are comps with 2009 and mid-term elections in November.  Remember, comps in September and October this year will be to year-earlier figures those months that lit up the charts in anticipation of the first home buyer tax credit deadline last November 30th. Again, the math of what got pulled forward last Fall versus baby steps toward a new-normal this September through November shouldn’t come as a shock to anyone, particularly with the kind of balance sheet work that occurred two years ago.

Strategically, what will go on will look a fair amount less dramatic than the testosterone-laced deal flow that characterized this past phase, which has now checked up. What occurred is that D.R. Horton, Meritage, M.D.C., Lennar, Toll Brothers, and to a lesser extent the other public companies availed of a generous moment in the debt markets and a generous windfall in tax-carry back refunds to build themselves a runway into the next upward run of housing’s sine curve.

Writing checks for lots at a dramatic discount to what one would have paid for them five years ago is all good. Now comes the interesting part, which is to see how what they all paid plays in the market. Each public builder, based on its overheads and leverage level has a bogie of an absorption rate to break even. Best of class is NVR, followed by Toll Brothers, who have to build and sell around one home per community per month to break even. Most of the other more competitive publics are clustered around an absorption rate of two-plus homes per community per month. The ones with the heaviest debt burden and highest SG&A need the highest rate of inventory turns to break even. Guess who: Hovnanian and Beazer.

Cash. Simply, cash is what separates those who can do something from those who have to wait. Waiting today may be tantamount to waiting for the grim reaper. Cash, cunning, and credibility are today what credit was yesterday. For a while, and probably a long while, cash will not only be king, but every other position of power and influence in the realm as well. With few exceptions–where cunning and credibility can stand in for hard cash for fleeting moments–cash at its present level, and the ability to generate more of it in the next 12 will shape the big builder landscape of 2012.

An X Factor under the heading of cash can cause some drama in the next few months, especially if public company share prices keep taking a beating. Call it idle cash, or cash that will expire and go back where it came from if it doesn’t get used. There’s a fair amount of that around right now, and insiders sense it could tip balances here or there in the next few months.

An example: Orleans Homebuilders’ assets might have been well on their way to becoming NVR’s but for the “idle cash” factor. Hedge funds, namely Strategic Value Partners heading up a trio that also includes Bank of America-Merrill Lynch and Anchorage Capital, bought up enough Orleans debt to take control of the company, and the hedge funds are willing parties to a restructuring plan that’s said to be gaining favor with the company’s Delaware-based bankruptcy court judge.

Strategic Value Partners is among hedge fund players, like MatlinPatterson, John Paulson, and Angelo, Gordon whose cash might work to significant effect in the next 12 months, before recovery solidly takes hold. We could see hedge funds buying up the debt of any number of public or private home builders and go so far as to precipitate combinations of some of them based on the prospective need for land assets once a rebound becomes manifest.

For private home builders, cash is what is already in their pockets or in the pockets of those with whom they enjoy a great deal of credibility. As Josh Levin’s note mentions, “the vast majority of survey participants reported that acquiring AC&D financing from banks remains difficult if not impossible to source.”

There are a few private builders around who can stomach “difficult” and are also cunning enough to take it on. Some, like WB Homes’ Bill Bonenberger, figured out a pretty solid runway for a private company to 2012 or so. He divvied up a land parcel with Richmond American, put the M.D.C. money toward what he owed his bank on the land deal, and thereby came back into within covenants to draw on vertical construction financing with other lenders. How many “wins” can you put in a row on that one, not to mention the bank’s not setting there with another REO deal to try to offload for a song?

For others, braving “difficult” is standing firm on personal guarantees, which banks have extracted mercilessly from longtime builder customers for the past few years.

Which is why cash–having it and having a way to generate it–is not optional as part of your runway to 2012.

Finally, demand. It’s amazing to us how blurred supply and demand have become. That’s nowhere clearer than in the fact that the number of jobs the economy’s shed since 2007 and the number of homes in the shadow inventory pipeline of delinquency is roughly the same, around 7.3  or 7.4 million.

Job losses and residential investment are inversely tied to one another, the economy’s dirty little chicken and egg. What the American Reinvestment and Recovery Act home buyer tax credit stimulus did accomplish was that it reduced months’ supply of existing and new homes by several months, almost down to what would be regarded as normal levels. The programs catalyzed enough sales to bring more scarcity to the market than an unstimulated environment.

Now, with industrial activity picking back up, and the global economy readjusting around who’ll buy and who’ll sell what, all the while continuing to create entire new populations of consumer classes, the biggest near-term question is this: what are the new family-supporting jobs in America, and how can this country get people in sufficient numbers to where those jobs crop up? Bureau of Labor Statistics forecasts for the next decade call for the US Economy to create 15 million new jobs, doubling the amount that it took out in since the downturn.

The biggest question is when that decade of job growth gets underway, and how many of those jobs are family supporting jobs. It’s those higher-paid workers who’ll funnel into the real demand universe of your buyer in the years ahead.

This is why home builders, if they do nothing else while recovery is still around the corner and over a bridge, need to learn as much as humanly possible about who your buyer is today.  If you don’t, you risk no buyer tomorrow. That would wreck your runway.

2010 is that one more year to eke out, and 2011 will be a year you can get some of it back. But not if you don’t learn who your buyer is today.

Not in 36 months or more could the word fun have even remotely fairly described the tenor of a home building executives’ event. This time, though, public company CEOs spoke with the first faint taste of profitability on their tongues, and private firm leaders were at it cobbling confidence-laced tactical work-arounds to chronic trouble getting bank loans to buy and develop lots, and build houses.

“We’re by no means out of the woods, but … ” was the broad spoken sentiment. Meanwhile, in their physical mien, one detected what looked like sparks of a strut and swagger there’d been no signs of in hallways such as these for three solid years.

Yes, there were profits or near profits, one or two quarters in sequence, based on a gross margin management and math that modeled out better with each succeeding financial reporting period. Yes, there was deal flow, at least on a project finance level, and it seemed genuinely as if cunning, compromise, and customer focus might actually carry the day as privates’ answer to publics’ facile access to a briefly open window in the debt markets.

What mostly felt different is that you were hearing these executives start to talk about what was working. They didn’t pretend to understand why, they just knew that products, and projects, and processes had started to work. The vast gap between bids and asks was, now and then, closing to a point were rough guesstimates on value had begun to materialize out of the clouds of inertia.

That was then. Twenty-days earlier, a blow-up occurred on the Deepwater Horizon oil drilling rig in the Gulf of Mexico. April 20th. Look that day up in history; not generally a day to celebrate.

In Chicago, in May, among home building’s leaders, “the spill” factor had not yet become a national catastrophe and a global economic force. That would start a week or so later, after several failed attempts to cap the gusher and after horrific images began to filter across the zeitgeist.

A month later, at the Pacific Coast Builders Conference in San Francisco, any vestige of the feeling of fun was gone. Defiance, resilience, even brilliance, in some cases, maybe, but nary a hint of strut and swagger. All gone.

What had come and gone was the putt-putt motor of a trillion dollars of U.S. Treasury stimulus money making its way into housing through April, through tax credits for home buyers and mortgage back securities purchases for the housing finance industry.

The putt-putt motor cut out, and the wind hasn’t picked up, mostly because wind in the sails of housing wouldn’t happen during the summer time, even in a good year. Before home building companies became prey to the tyranny of Wall Street, the business’s leaders often would take their families on a long vacation, and fish, hunt, golf, or do just about anything but think and read the financial pages.

The April 30 deadline for orders of new homes–the end date for settlements has now been shifted from June 30 to September 30–effectively divided 2010 into two separate time periods within a single calendar year.

“At least internally, we’re doing two yearends this year,” the CEO of a public home building company told us. “One yearend is everything to do with the tax credit, so we’ll count all our business through June 30. The rest of the year will go toward the December 30 yearend. We still don’t know how the back half is going to turn out, but looking at 2009 and 2010, we believe 2010 is the bad year.”

What can be said about the back half of 2010 for home builders is that there are four and only four kinds of home builders.

• Those who have cash enough
• Those who have cash, but may need more
• Those who don’t have cash, but don’t need it
• Those who don’t have cash, and need it

One of the only positive places to be right now, between July 1, 2010 and the first glimpse of a recovery most housing economists regard as normal–1.2 million to 1.4 million single-family starts–is to have cash, or at least not to need it.

Others might as well at least enjoy the rest of July and August fishing.

That’s just what happened as around a dozen or so big name, small name, established, and upstart home builders feasted for the past eight months on 1,100 or so building lots and houses in various states of completion that were part of the now-fallen private empire that was John Laing Homes in Arizona, California, and Colorado.

Taylor B. Grant, judicial receiver, presides over property auction in Marina Del Ray

“Sometimes bad news for some is good news for others,” says Taylor Grant, whose Newport Beach, Ca.-based California Real Estate Receivers has harvested more than $100 million for lenders since October 2009, from home builders and developers in his as a court appointed receiver handling the disposal of assets once listed as WL Homes’ (John Laing’s corporate aegis) portfolio with lenders GMAC Rescap and a syndicate led by Bank of America.

In all, Grant’s California Real Estate Receiverships has maintained, cleared of legal issues and liens, and staged for sale 970 lots and 128 homes in the B of A portfolio, netting a high of $25 million from Pulte Homes for 190 lots and two homes near the Northern California city of Fremont, other large transactions with Standard Pacific and Toll Brothers, as well as a number of smaller deals with home builders, both ”newco.” and established.

Fifteen parcels in two Colorado Springs area communities went to Campbell Homes, which has been operating since 1965. Other seven-figure deals have served as “out of the gate” plans for several of the industry’s noted start-ups, such as TRI Pointe Homes, who’s executive team sprang out of the ranks of William Lyon Homes,  Joseph Carl Homes, where former TOUSA/Engel Homes division president Carl Mulac has started up in the Phoenix market, and Larry Webb’s New Home Company.

Webb had resigned as CEO of John Laing Homes in April 2008, and his former company filed for bankruptcy in February 2009.

Of the 1,098 lots and homes, 18 homes remain to be sold, according to Grant, who as receiver answers exclusively to the court and juggles roles as developer, builder, property maintenance expert, and marketer in an effort to keep value in each property and add value to those that need it.

“In some cases, we’re dealing with expiring entitlements or environmental permits that need to be renewed, and clearing liens and bonds, to keep the property’s value,” he says. “We have to make sure neglected properties are brought back to respectability; if a home is partially built, sometimes we’ll finish it. The same with lots–if they’re part finished we’ll figure out whether it’s worth more to go ahead and finish them out or not. In some cases, we’re the baby sitter for the property, and in others, we’re looking to maximize the value.”

Grant says he appointed asset managers for Northern California, Southern California, Arizona, and Colorado, who worked as “boots on the ground,” to determine what amount of work would be maintenance versus improvement to extract the most value possible for the lots.

In one of the final large hurdles of the project, Toll Brothers is scheduled to close today [July 1] on the acquisition of 18 single-family detached lots and five homes in Northern California’s San Ramon Valley in Contra Costa County.

After that, it’s 18 houses left, says Grant. “We’ve recovered more for the lenders than they might have expected from all of this,” he says. “Working for the state superior court, we get a single order to cover for all of the decisions and actions, so we’re not constantly having to go back for permission on every issue like in bankruptcy courts.”

A dozen or more builders got their win-win of good location lots for a low cost, and now–they hope–can turn the John Laing Homes demise into their own story of success in the months ahead.

Just add home buyers.

“We’re looking at some new land offerings, and you’re definitely not seeing the bidders you were a few months ago,” says the CEO of one of the national public home builders. “For someone who’s an aggressive player looking for land, it’s defnitely a different game than it had been.”

Word out in the residential heartlands is that as many land deals have builders “backing out” as wanting in to the dance. The back outs–even in California, and even among a couple of the most aggressive home builders–D.R. Horton and KB Home–who’d been somewhat ravenous bidders until say, around April 30–leave the bidding to fewer, more careful players, which means prices don’t go soaring. Sometimes they even soften.

Some big players’ appetite for land is yet unsatisfied. There continues to be pressure among a number of big public builders to reduce conspicuous SG&A costs by opening new communities in a number of markets, and they’ve still got a passel of cash from Net Operating Loss tax carryback refunds to plow into lots for these new stores. Justifying a geographical footprint is motivation enough for continued interest in strong land positions in selected markets. But not every finished lot in kingdom come.

Others have slowed or halted their lot binge, and need to focus now on working through the speculative inventory they brought online in hopes of huge sales success during the waning days of the home buyer tax credits. That didn’t happen.

In the 12 months from April 2009 forward, big builders committed hundreds of millions of cash to acquire new lots in a massive re-load of their pipeline. The math of the amounts they paid comes down to two bets, one on price and the other on timing. With the recent acquisitions, builders are banking on order rate increases at higher gross margins based on lowered costs, including on lots.

With the incipient recovery in limbo, some of those price and sales pace assumptions will get a stress test in the months ahead.

Attention of the mainstream press still focuses on a froth in the land demand market that may or may not be history, depending on whether or how much traction comes back into the new-home market at the end of summer and early fall.

Now, as some of the more vaunted land parcels are due soon to come in to the market pipeline, momentum in demand for land may be tricky indeed. Specifically, the veritable goldmine of Lehman Asset Management Company parcels in California, the Southwest and Florida that have been tied up in bankruptcy since Lehman’s Sept. 2008 Chapter 11 filing are said to be of critical interest among buyers.

With the new-home market in federal government support cold turkey, questions remain on both the price tag builders paid (i.e. did they pay low enough), and the predicted absorption rates to drive past breakeven to profitability. While builders’ troves of cash are impressive following a couple of years of not spending on land as well as their NOL refunds, at least a few of them have to balance the risk of spending too much of their cash and a couple more years of negative cash flow.

The notion of burn rates–which gained widespread attention during the dot com bust–may also apply to home building if housing’s cycle remains relatively feeble.

Residential land pricing, one of new-home building’s leading economic indicators, is now going sideways thanks to the growing ranks of builders who’ve exited the fray. Equity market analysts have their “head and shoulders” rally theory, so why not consider a similar land demand pattern emerging pre-recovery in housing?

For those who are still in the land-buying market, this is a positive, because with less counter-bidding for preferred locations, winners of the auction will likely be able to build and sell their strongest product lines faster and more profitably.

The narrative we’ve heard repeatedly that plots typical housing cycles goes like this. As housing reaches a trough in its cycle, evidence of an inflection inevitably occurs in the equity markets first. Equity stocks investors‘ behavior is regarded as predictive, factoring in whatever headwinds remain, and pointing ahead toward a fundamentals recovery, usually down the road by four calendar quarters or so.

Then emerges an increase sales volume, which, when transactions sustainably pick up, leads to an increase in housing starts. Then, later into the upward trajectory of the parabola, comes pricing power, which crescendos at some inevitable point, and that’s when equities predict the next downward cycle.

Fact is, this narrative has shaped itself around several variables and a single constant–you guessed it, home prices. They just didn’t ever fall, at least not nationally.

The housing cycle, as several generations of home builder developers have known it, may be getting its own extreme makeover.

Even as fee builders, home building organizations can’t seem to get a fair shake. They take on costs to help banks unload some of their REO holdings with as much value as possible, and then, sometimes, wind up in a tug of war to get paid. So, not only is it nigh impossible to take down new loans to go vertical on one’s own lots, it’s getting harder to get what’s deserved in resolving payments for fee building.

Here’s what we hear from one of our beleagured correspondents fighting the fight “in the trenches,” hoping that fee building might offer a narrow path to recovery.

Here’s a great one: One of the banks that took a bunch of TARP money owes us some money. I’m having a heck of time getting it. Why? The accounts payable function of the bank seems to have been sent overseas, way overseas. I find myself attempting to provide the ‘right’ forms to someone who doesn’t live in this country and I find it maddening. Jingoism or prejudice? Hard to keep your feelings in check when an outsourced expert starts explaining  how a W-9 that passes muster in all of our transactions seems to somehow be inadequate for one of the minions from an outsourced department.

Oh, what’s it matter? Other banker buds have told me that only the dumb banks put TARP money out as loans. The rest stuck it on a shelf to bolster balance sheets and waited patiently for the day that the Fed allowed them to pay it back (and stuff some big, pirogie-like bonus dollars down their throats as a reward for a job well done).

You could hardly fault the cynacism here.

On a slightly more positive note, we hear there are players who are close to assembling fairly significant investment funds that will set up to debt-finance home builders’ construction initiatives. The money will trigger only if a builder brings a slew of equity into the equation, and agrees to some pretty aggressive returns to the investors.

Still, the thought is, if there’s a real and serious alternative to capital access playing in the market, it may bring traditional commercial lenders back into the game. Fear of losing too much business might just jog them into starting back in with acquisition, development and construction lending.

Stay tuned.

Investors’ advisors have temporarily quit obsessiveness over credit issues in the Eurozone, and settled back into fretting over the mixed signals emitting from the broader domestic economy’s “Little Recovery that Could, or Perhaps, Tried Really Hard, But Couldn’t.”

We cover new residential construction here, and let’s just say we were looking for a silver lining to take out of the housing data stream, particularly since the April 30th expiration (on orders) of tax credits for home buyers.

There are at least two big good news items, and a third that may or may not tie to the ever mysterious workings of Animal Spirits, in the George Akerlof and Robert Shiller sense.

Let’s start with the third, which it turns out, owes itself more to chance and potential than the other two positives, which are more real and palpable today.

Still, if you believe, as many home building executives do, that the market is due to recover a bit of bygone momentum by early to mid-Fall (take our two-question survey here), you may take good news from the thought that home buyers might be reluctant to get back into the market before they’re damned sure the government is not going to be back with another prop up for demand. That means May, June, July, they’ll sit back and wait to hear of whether Congress will come up with another one of these programs to stimulate demand for homes.

People who buy expensive things these days–especially homes–don’t like to be thought of as stupid. In an environment where political interests are sharply polarized over whether to cut deficits or keep supporting spending, people have learned not to jump too soon on one side or another. Congress says, “No more housing stimulus programs,” but it only means that insofar as it improves odds of incumbents keeping their seats in office come the November elections.

So, if people get a few months’ proof of Capitol Hill clarity and decision, where we don’t have new home buyer tax incentives crossing the president’s desk, they’ll begin to behave with a market-driven mentality as opposed to an unsustainably elevated government-propped environment. After the extension and expansion that took place last November, there may be reason to believe many Americans imagined the punchbowl would be left in place even longer.

So when potential home buyers become fully aware and resigned to the fact that the credit spigot is off, they’ll resume going equally aggressively at negotiating their purchase from the driver’s seat of market dynamics. The 213,000 new homes in the 8.5 months’ inventory of new homes will sell into a buyers’ market like never before.

As a CEO of one of the national public home building companies put it to us this morning, “We have already projected fewer sales in 2010 than in 2009. 2010 is the bad year.” 

He adds that the sales volume side of things is as bad as it has ever been, but stable. Read in that an opinion that it’s not going to get worse than when it was worst (in early 2008). He also says that in the unlikely event that jobs numbers start telling a positive story, things could beat his expectations this year.

Here’s where the two silver linings are.

The first is that home builders have taken their medicine. They’ve cut people, communities, and carrying costs of land so drastically, that they’ve now become capable of making money at a significantly lower volume of sales. “We’re better at dealing with less,” says the CEO, who spoke on condition of anonymity. “You’ll see that most of us made money in the 2nd quarter, even at these low levels of sales.”

One of the important things to look at in the reported earnings calls, is what each public builder’s breakeven point is. In some cases, including interest payments, home builders with larger debt loads, higher SG&A costs, and lower gross margins need to sell something along the order of 5.3 homes per community per month to break even. Best of class builders like NVR and Toll Brothers need to sell around one per month per neighborhood to break even. Many of the others are clustered in the low 2s.

If you know what a company’s breakeven point is, and what their cash flow is, you can look beyond the troves of cash most of them have piled up and see where they may be burning down their cash toward an eventual end game with the market recovery.

The second real silver lining in the market now is this. The current leg down is where real give will take place on land pricing. Our CEO tells us that the days of gang-bids on every land parcel that comes up for sale are over. “We’re starting to see builders actually back out of some deals they’d locked up because they’d overpaid and it wasn’t going to work for them,” says our source.

So genuinely opportunistic land deals are now occuring for those who are still or recently cranking up their land acquisition resources.

So, even in a state of limbo, while consumers begin to realize the government is not going to step back into the housing market for another round, home building operators have a choice to model profitability around a 600,000 or 700,000 starts landscape for a few more years, and figure out what slice of that number they can own. Also, it’s getting to be the best time in years to go into the market for residential real estate because lot prices are getting less sticky.

Starwood and Paulson are well aware of that too.