In a year when the country's new-home sales fell precipitously, by around 17 percent, the BUILDER 100, as a group, more than held its ground, dropping its total closings by a scant 1 percent over 2005's totals. That difference in year-end numbers leads to an even more amazing conclusion—that the nation's top 100 builders grew their market share by an astounding seven percentage points. And the builders in the top 10 grew their share the most—by 5 percent over last year, giving them a total of 25.71 percent of all sales. In other words, America's top 10 builders were responsible for more than one of every four new homes sold in 2006.

But did they make any money? After all, everyone knows the big builders were trying to burn through their inventory, offering huge discounts on prices, mortgage buy downs, expensive incentives involving options, upgrades, bonus rooms, pools, design services, you name it, as well as other sales promotions that defy categorization, such as vacation packages or free gasoline for a year.

Well, yes they did. Overall, the BUILDER 100 increased their gross revenues in 2006 by $6.5 billion, a nearly 4 percent increase over 2005. And the top 10 builders alone saw their revenues escalate by $5.85 billion, a 6.3 percent gain over last year's numbers.

How does that compute, building fewer houses and making more money? Many of the builders queried explained this conundrum by admitting they were working off a backlog of homes built in 2005. And it didn't hurt that some were selling a higher percentage of move-up and luxury homes. Though home prices on average did not increase by much more than a couple of percentage points from 2005 to 2006, higher-priced homes mean more revenue. In addition, there were the land sales. Number six on the BUILDER 100 list Hovnanian Enterprises, for example, boosted its annual gross revenue by more than $140 million by selling off land it had purchased in more optimistic times.

So the year was actually a pretty good one for many of the country's top builders, on paper anyway. Single-family building permits were the fifth highest they've ever been, new single-family home sales and starts were at their fourth highest number, and there were more single-family completions than ever before.

But alongside those superlatives is another one: According to the NAHB/Wells Fargo Housing Market Index, builder confidence is at its third lowest ebb in 22 years. And for good reason.

The train wreck going on in the mortgage market is going to hit 2007 home sales hard, with a cascading effect that will be felt for some time to come. With more than two dozen subprime lenders closing their doors within the last six months and more stringent lending standards in place for those that remain, a large percentage of the former pool of home buyers, perhaps upwards of 20 percent, will vanish. Most of these buyers are in the entry-level sector; without them, homeowners looking to move up will not be able to sell their present homes, further diminishing the pool of potential buyers. Those who have already plunked down their deposits for a new home and can't sell their old one will join the growing numbers of cancellations. Those who completed their purchases in the last few years and are now looking to refinance their way out of onerous exotic mortgages and can't, because of lower appraisals and tougher underwriting criteria, will join the growing numbers of foreclosures. Additional cancellations and foreclosures will cause an increase in the numbers of homes in inventory. And so on and so on.

Where will it end? Some say in a full-scale recession. Historically, housing downturns do not always lead to larger economic meltdowns, but since 1995, the builder confidence index mentioned above has served as a pretty good indicator of future stock market returns. Let's hope builders' current pessimistic attitude, this time, is just that.

Denise Dersin, Editor in Chief