True or false: Homeownership is one and the same as the American Dream. If the statement is true, one could expect that two stories will unfold over the next stretch of the downward spell.

John McManus Photo: Katherine Lambert One story is that public home builders will continue to leverage their ability to move back prices further and further to sell off their inventory at a cash flow positive level, pile up the cash, pay off their debt, buy land at cheaper prices, and start the whole cycle all over again at pricing, margins, and returns roughly at 2001 or 2002 levels.

The other story is that none but the halest, wisest, or luckiest of private home building companies will survive the next tightening clench of their bank-loan-reliant financial structures. The playful jaw-boning we'd heard during the run-up years as to which business model was a smarter capital base–public or private–is about to incur a cathartic blow.

In Jamie Pirrello's analysis of this predicament (see Big Money, page 51), the CFO of Michael Sivage Homes & Communities notes how the difference in capital structure amounts to a dramatic–and unfair–advantage for publicly traded home building companies in a slump.

"Most public builders' land and work-in-process inventories are not secured [by mortgages]," Pirrello notes. "Every time a public builder sells a home, it generates cash even if it's at or below cost. A public builder can generate cash by selling a home below cost as long as the cash received is greater than the cost to construct a home plus any sales and marketing expenses." In contrast, a private home builder needs a profit margin not just to cover overheads and hard costs for construction, but to pay off the acquisition and development loans on the lots.

For privates, writing down land values is the equivalent of posting "going-out-of-business" signs on the front window of a retail store. What many private company executives can only be left to figure out is how to minimize collateral damage to their own financial situations and that of their investor partners. Many want to stay in the business of building homes and neighborhoods for people, even if they succumb to gravity in today's environment.

To grasp the dilemma, all one needs to do is to look at the picture Crosswinds Communities' president and sole shareholder Bernie Glieberman posed for in Big Builder's cover story. He's standing on an unfinished sidewalk outside of an unfinished new home, where the grass is long and for-sale signs are sprouting faster than dandelions. He took on responsibility for his own home building company after his father died when Bernie was 17 years of age. He–and many of his like running home building operations across the nation–is a quintessential battler.

But what if the leading statement is not true? What if the American Dream is not home-ownership itself–let alone a specific home–but rather what homeownership or a particular home says about oneself? "I want this life and this lifestyle" is more the profound economic driver in our society than "I want this particular home."

This changes the plot altogether. Burning through the inventory, then, becomes only part of the solution home builders must develop to catalyze demand. Scarcity will help, but what big builders need to do is develop products and secure lots that do not rely so heavily on the push outward from the cores of cities, particularly in search of good schools, security, and privacy. Those values certainly do not diminish, but they change radically in a world of $5, or $6, or $7 a gallon gas, a constantly elevating premium on time, and all the evolving ways to connect to work, family, friends, and members of the tribe. Sustainability and technological advances will be your value proposition versus homebuyers choosing a resale.