BUILDERS SAY THEY'LL build on smaller lots to keep prices down. But there's more to it: They have to build on smaller lots. In many areas, they cannot get the acres they need to build on traditional lots.

Smaller builders frequently blame national builders in their markets for their inability to find land. But even the big builders can't always get what they want. In 2005, several bought other companies for their lots. “There isn't a more efficient way to get parcels of land,” notes Steve Friedman, Ernst & Young's national director of housing.

Look for those kinds of deals—and others—to continue. Public builders have promised Wall Street as much as 20 percent growth annually, and for most of them, existing operations or startup divisions won't be enough. They'll need to buy other companies, and the industry's strength makes it a good time for smaller builders to sell.