William Lyon Homes has managed to shrink itself down to bare bones, narrowing its losses to $11.6 million versus $41.1 million a year ago, even as it has whittled down the number of communities it is selling in by 38% in the past year.

But a new source of nourishment is flowing into the company from a real estate investment group, which is loaning the company $206 million to restructure its debt and provide capital for operations and potential land deals.

"We are confident in our ability to generate cash now that we have the ability [with the cash infusion] to prime the pump and get some of these projects started again," company COO William H. Lyon told analysts during Thursday's conference call.

At the end of September, the Newport Beach, Calif.-based company had only 24 communities open, down from 39 the same quarter the year before. Despite fewer sales outlets, the company's closings for the quarter were essentially flat at 227 versus 230 the year before.

The average sales price was down 33%, from $368,700 last year to $245,700 this year, because of price depreciation and because the company has begun to focus on lower-priced homes. Now the company has no projects where prices are more than $500,000.

"Four or five years ago, we started buying more entry-level product to develop," said Lyon. "It's definitely bearing fruit now where jumbo financing is still a challenge."

The company also has managed to boost its gross margin to a still-skinny 12%, but a big improvement from the 5.4% margin the year before.

There are signs the market is beginning to stabilize, particularly in California, company executives said. The cost and numbers of incentives have dropped to almost nothing, and the company is considering some modest price increases in some products in some markets.