I think I perceive the down-cycle as lasting much longer than you believe. In other words, I think the builders are better off unloading their inventory now and using the cash generated to pay down debt because I don't think they are better off waiting. I think there is a secular decline in home prices. 2002-2005 was a bubble for sure. Demand was not real. It was created by speculation and a new class of buyers that never had the access to credit. However, these people never "owned" their homes according to me because they never had equity and now have negative equity. The banks own them. The industry rose to overbuild to meet phantom demand. We will have a secular housing inventory overhang. The long-term bull thesis of population growth is not compelling. We had "record" home-ownership, but equity as a % of home value was a record low. I have conducted a study that strongly suggests cummulative home equity on mortgaged homes is slightly negative. Yes, only 30% or whatever are underwater, but to such an extent that it puts total hom equity below 0.

What I suggest to you is that they have arleady incurred the losses in an economic sense, and won't be able to recover any by waiting for higher prices. The fact they will make earnings more negative is just an accounting phenomenon of them realizing the losses. The only thing they can do is generate cash by liquidating inventory.

I know that was rambling, but I have a point in there somewhere. Sorry I can't articulate myself better.