M.D.C. Holdings Inc. (NYSE:MDC), Denver, on Friday morning reported a net loss for its second quarter of $29.6 million (-$0.64 per share), including an impairment charge of $1.2 million and a $17.6 million increase the company's deferred tax valuation allowance. The quarterly loss compares with a loss of $100.7 million (-$2.18 per share) in last year's second quarter. Analysts were expecting a loss of 58 cents a share.

Revenues were off 51.6% to $195.3 million as closings fell 49% to 665 homes and the average selling price declined 6% to $279,000. New orders, however, ticked up 2% to 977, average selling price increased 2% to $295,800 and the cancellation rate fell to 20% from 43% in last year's second quarter. Orders were up 81% to 292 in the company's Mountain region, up 40% to 134 in the East, down 4% in Florida and down 25% to 479 in the West. The company said the improvement in the cancellation rate was due to a decrease in mortgage-related issues and a decline in the number of prospective home buyers with a contingency to sell an existing home.

Homes in backlog rose 76.5% from yearend 2008 but fell 40.3% from last year's second quarter to 941 with an estimated sales value of $295 million. The estimated selling price of homes in backlog was $313,500, down from $324,600 at the end of 2008 and $331,200 at the end of last year's second quarter. Average community count was 160, down from 202 at yearend 2008 and244 at the end of the 2008 second quarter.

M.D.C. ended the quarter with $1.6 billion in cash, no borrowings on its revolver and no debt maturing before 2012. Home building SG&A decreased to $30.8 million for the quarter ended June 30, 2009, compared with $56.7 million for the same period in the prior year, due in part to a 44% reduction in employees. Gross margins increased to 18.0% from 11.7% in the second quarter of 2008, largely driven by lower impairments this quarter.The gains from the favorable comparison in impairment charges, however, were partially offset by the decline in the average selling prices of homes closed and by a shift in mix to a higher percentage of low-margin model and finished spec home closings.

The company had 452 unsold homes under construction at quarter's end, down from 821 at yearend 2008 and 955 at the end of last year's quarter. It had246 model homes, down from 387 and 533 respectively at yearend and June 30, 2008.

Owned lots fell to 6,744 from 7,577 at yearend 2008 and 8,894 last June 30.Controlled lots also fell to 1,971 from 2,358 and 2,782 at yearend and the end of last year's quarter, respectively.

"Overall economic conditions in the second quarter remained extremely difficult, as evidenced by a national unemployment rate that now stands at its highest level in more than 25 years," said Larry A. Mizel, M.D.C.'s chairman and CEO, in a statement. "However, we did experience a year-over-year increase in quarterly net home orders for the first time since 2005, and our impairments dropped to a nominal level. In addition, building and sales activity for the industry overall improved from historic lows recorded earlier this year."

M.D.C. introduced smaller, more affordable homes early in 2009 in several of its markets. Mizel said the line of homes has been "well-received by our buyers, with a sales absorption pace exceeding the company's average."

He also said the company has been dabbling in specs, of a sort. "We believe that the strategic production of unsold homes can be very effective if managed properly, and therefore we have built a limited supply of unsold inventory. We generally require construction on the unsold homes to stop at the drywall stage so that the buyers have the opportunity to personalize the homes with upgrades from one of our Home Galleries or design centers. We believe that this strategy will help us to turn our inventories more quickly while we maintain margins similar to those received for a build-to-order home."

Meantime, Mizel said the company is on the hunt for assets. "We are well positioned with the option to take advantage of market opportunities that may arise. We continue to actively pursue and evaluate potential investments," he said.

Shares of M.D.C. were up 2.25% at $34.96 in early trading Friday.