Whether home builders naturally have abnormally optimistic natures or whether they tend to fall prey to some sort of Kool-Aid effect, people who see lots of positives occurring in today's market are not as rare as you might think. They admit that the sharpness of the downturn has defied their expectations and confounded all attempts to calculate how far the industry and their own businesses will fall.

Still, they speak of the ways this inevitable correction is a good thing. It will work as a catharsis—ridding the home buyer market of quick-buck seeking investors—and as a sieve, filtering out weak staffers, ineffective processes, inflated land and materials prices, and even home building companies not fit to last through this cycle. M.D.C. Holdings chairman Larry Mizel says that “the secret to success in this business is to not go broke.” It sounds obvious, but for those vested and invested in home building businesses, the statement rings with wisdom and nuance, of both the folk and Wall Street variety. Mizel started his company in the 1970s on $40,000 of his and his partners' money, nearly losing everything in downturns since.

When home building operations aren't going gangbusters most companies have to learn to lower their metabolism, get rid of anything that smacks of extravagance, and reach down into their core for something more than what greenback dollars can deliver. Some other currency has to kick in—a give and take of leadership, teamwork, accountability, and alignment. This currency is available to companies that operate not just off a balance sheet, but a culture. You can operate a juggernaut off a balance sheet, but you can't operate a company capable of withstanding a really harsh downturn off one as well.

Senior editor Lisa Marquis Jackson's article, “At the Crossroads,” page 54, focuses on Meritage Homes' reckoning with the delicate balance the nation's leading home building enterprises must strike between a unified mission and a localized entrepreneurialism. Steve Hilton, the sole CEO of a relative newcomer to home building's pantheon of top 15 companies, has the dream of being “an acquirer” in the next wave of consolidation. But first, he must deal with the challenge of proving that Meritage can be an operator in bad times as well as good. If he's going to rise to the occasion, the highly Balkanized federation of businesses that is Meritage today must unite around more than its high-flying balance sheet. The balance sheet allows you to measure performance but only a culture allows you to measure behavior.

Here's an example. In mid-September, at JPMorgan's 12th Annual National Home-builders' Financial Executives Symposium, the CFOs of top home building organizations, whose worth collectively exceeds $100 billion, sat lecture-hall style, listening to a panel of peers muse about the liquidity of private equity, the ravenous appetites of hedge funds, and the strategic likelihood of publics devouring publics once the current free fall in the market hits its bottom. Who'll buy whom? Don't underestimate the importance of culture in determining which balance sheet fits with which. Or else how could it be that Lennar Corp.'s CFO Bruce Gross could turn 150 high-finance executives into an auditorium full of enraptured, dreamy-eyed kids in grownup clothes as he recited “Scratchings from the Little Red Hen,” a nursery rhyme Lennar has embraced as a cultural anthem? Culture, what makes a company tick beyond its business model, counts for a great deal when tough times compromise balance-sheet performance.

Anyone who knew Jim Pugash knew just that. He created and built the company, Hearthstone, like many of your companies: a blend of business and purpose. Brilliant and passionate, he'd submerge both to simply effect excellent work around him. Jim passed away on September 20, after a struggle with cancer. He was a friend and an inspiration to many of us.