Just for a moment, let your imagination flash forward to a better time. One where the current landing—soft, hard, crash … you decide—exists only as another of home building's history lessons.

Every industry leader seems to agree that the abruptness and depth of home building's descent caught everyone off guard. Still, unanimously, they assert that recovery will come; it always does. It may be 2008, or even 2009, but the world of high-volume, new home building may look quite different—as in fewer, but larger players, a smaller world of bigger behemoths. Predictably, the smartest and most financially robust will use the latter part of the market correction to amass more power and market share. Others will concede to an inevitable wave of consolidation.

Steve Hilton, CEO of Meritage Homes Corp., sees himself unequivocally among the eventual elite, and he has every intention to take Meritage up several more rungs to home building's highest echelons.

“We will be an acquirer,” Hilton says. And apparently, a big one. In August, during a multi-day planning meeting with his freshly re-organized leadership team, executives established the goal for Meritage to double in size despite the downturn. “We are just at a pause,” says Hilton, who after nine years of sharing the helm with co-CEO John Landon (who was ousted) got his board's nod to take over as the company's sole leader in May. “It's not because we want to be, but because we have to be. If we saw a great deal tomorrow, we wouldn't know what to do with it. We can't value things. We're in the eye of the hurricane.”

For Hilton to say it's the “eye” may just turn out to be wishful thinking. As an industry sector, the nation's leading home builders have struck on brutally changed market conditions, the extent and duration of which remain anyone's best guess. Individually, each major company—$3 billion, BUILDER 100–ranked No. 13 Meritage included—must face its own vortex of risks and challenges, depending on geographical and product exposure, as well as financial and business structure.

A WAKE UP CALL Specifically, Meritage's meteoric ascent, financially and operationally, over the past five years may be fueling Hilton's swashbuckling outlook. But many of the very catalysts for Meritage's wild, unabated success may also factor into the company's toughest challenges.

Among some home builders, operations that were juggernauts yesterday are train wrecks today. Meritage's markets, save Texas, are the markets that have been pulverized in the past few months—fastest growing, fastest appreciating, most overbuilt, and, now, fastest plummeting. Most predict conditions will worsen before they get better in California, Florida, Arizona, Nevada, and Colorado.

Another red flag: Meritage's product concentration. The company's bread-and-butter business is the move-up buyer, but today these buyers are caught in a stagnant resale market that has the industry shuddering. If buyers can't sell their current homes, they can't buy new ones. That's a worry, especially as an estimated 50 percent of cancellations now trace back to prospective buyers' inability to sell their existing home.

Still, these flashpoints only highlight Meritage's real immediate challenge: Facing up to systemic flaws that the boom market “forgave” during the run up. Growing by nearly a billion dollars a year for the past two years has come back to bite Meritage in the tail. Now management is scrambling to reinvent a business that can function and thrive in a down market, as well as it did it in the slam-dunk days. To continue on as the same company—a loose-knit hive of separate local businesses—was not going to get Hilton to his strategic nirvana.

Meritage execs found this out late last fall, when, without warning, it surfaced that the company's Northern California region would miss its year-end numbers. The Sacramento division was tanking. However, its leaders were in denial, so they hid the miss until it was too late. Sales had dropped 75 percent in October. Adding in cancellations, the division posted a horrifying negative six sales for the month of November—a fact the panic-stricken managers were not up front about with corporate. “By the time they finally told Hilton what was really going on out there, the sky was falling,” says a local market expert.