By Alison Rice. The economy may be sputtering, but you wouldn't know it by reviewing the public builders' recent quarterly reports, filled with double-digit order and earnings growth. At Centex, orders are up 20 percent, compared to 2001, with a corresponding 13 percent rise in quarterly earnings per share (EPS). Other builders also reported year-over-year EPS gains, such as Ryland (32 percent), KB Home (33 percent), and NVR (46 percent).

Such strong performances weren't expected by analysts, who'd predicted more modest increases this quarter as builders felt the effects of the September 11th-related pause in home buying last fall. Incentives offered during that time caused this quarter's margins to dip by a few percentage points for some builders, "but the discounting wasn't as heavy as expected," says Paul Puryear, managing director of real estate research at Raymond James and Associates in St. Petersburg, Fla.

But the quarter's orders were definitely heavier than expected, especially for acquisitive builders, with more than $2 billion in new orders at D.R. Horton alone. Orders jumped almost 51 percent at Horton, benefiting from Schuler Homes and smaller acquisitions; 57 percent at Standard Pacific Corp., which includes two Florida additions; and nearly 60 percent at Pulte, thanks to its Del Webb merger.

Acquisitions don't account for all that growth. Horton would have hit a 17 percent order increase on its own, and according to pro forma numbers that compare a combined Pulte and Del Webb year-over-year, Pulte also would have achieved 17 percent order growth. Obviously, these builders are profiting from more than smart MAs.

The winning formula? A combination of a strong housing market and a weak economy, which Puryear says creates an almost ideal opportunity for big builders to increase market share. "The consumer has credit," he says, "while corporate credit is scrutinized heavily, leaving small and medium builders with modest credit problems."

As for concerns about a housing "payback," builders disagree they're stealing from future sales. "We see the long term as robust for demographic reasons," says Sam Fuller, CFO of D.R. Horton. "Even though home buyers are sensitive to interest rates--and entry-level buyers are more sensitive than the rest--home buying decisions are more strongly influenced by consumer confidence and, at the entry-level in particular, affordability. As long as 30-year fixed mortgage rates are anywhere south of double digits and people are employed and feel confident in their jobs, we believe that the healthy demand for new homes will continue."