According to “Wonder-Land,” a report by Credit Suisse analyst Ivy Zelman, the vast majority of land held by today's biggest builders was negotiated less than three years ago. In fact, Zelman estimates for the public builders in her coverage universe, 99.3 percent of owned land in their portfolios was purchased between 2003 and 2005. For lots optioned, 98.5 percent of the contracts were negotiated during the same time period.

This buildup of new land coincides with a 16 percent year-over-year escalation in land prices. This suggests that the land on the builders' books is overvalued and thus susceptible to impairment charges or option deposit write-offs. And if Zelman's expectations that moving forward land prices will fall 27 percent off their peak, signaling a return to 2003 land values, that spells big trouble for big builders' balance sheets. The hundreds of millions in land-related charges that builders are taking today may just be a drop in the bucket. Zelman expects the price drop to cost the publics $11.4 billion.