Meritage Homes is on a land-buying mission, says Brent Anderson, the company's investor relations director.

“We are looking for deals pretty much everywhere [Meritage builds now] except Las Vegas. But even there [in Vegas], we've got our eyes open to what's going on,” Anderson says. “It would take a pretty darn good deal to come along, but we are not necessarily ruling anything out.”

Meritage is an example of a builder with an urgent need for land because it keeps a smaller lot portfolio than many other builders. But it is not alone. Other publicly funded production builders are scouring their markets s in a near frenzy to replenish dwindling community levels with lower-cost lots that can sell fast, deliver larger returns, and keep cash flowing.

“We need to be acquiring, on average, about a community a week,” says Anderson. “We can do that. It sounds somewhat daunting, but we are finding those [communities], and we are on a good pace. We've got a good system worked out.”

As the housing market fell, lot t development stood still. After more than a year's land rush for ready-to-build lots, the pickings for right-priced finished lots in prime locations are slim to none. So, even while home sales remain lackluster, many production builders find themselves keenly in need of land.

And many are having trouble finding it fast enough, says Jim Bagley, principal of City Homes, a new developer/builder start-up in Florida. “Community count decreases for most of these public builders are going to be horrific,” says Bagley, a former Meritage division president.

In most cases, builders are looking for land in markets where they already have operations, that are land-constrained, and where they think they can get higher margins and volume. In some cases, at first glance, the markets where they are shopping seem to be bad bets because they were prior bubble markets that seem far from recovery.

“The bubble markets are going to bring what investors feel is the best return,” says Bagley. “These are markets with the most distressed opportunities, the most underwater owners.”

The bigger the distress, the cheaper the lots, the higher the returns is the thought.

“This is not alleviating the bubble market syndrome,” Bagley says.

The public builders are quick to say in their quarterly conference calls that all the deals pencil out with un-leveraged internal rates of return at 20 percent to 25 percent. Land market experts familiar with recent purchase prices shake their heads at that. Public builders, with hundreds of millions of cash, might say they are see seeking those kinds of returns, even make them look likely on prospectuses by factoring in unrealistic appreciation of the land values, yet in the end they are likely to net much less, they say.

The fact is even if return rates are lower than the targeted 20 percent, selling houses, even at lower margins, brings in cash to keep the company's lights on in the market, a and that's better than letting huge sums of cash rest in the bank.

“Realistically, if they got a 10 percent r return on investment, when cash is only earn earning 1 percent at the bank and they need to keep their businesses alive, I think that is a reasonable purchase,” says John Burns, CEO of John Burns Real Estate Consulting.

Privately funded builders, lacking public builders' access to cheap debt and in some cases no debt at all, are much more cautious about land buying than their public peers.

Rex Gordon, vice president of corporate land acquisition for Drees Homes, is as worried as the public builders that there will be a lot shortage but has been cautiously holding off on investing too heavily. “We are not running out looking for a lot of land or a lot of lots, it's more that we are looking for the right lots,” says Gordon. “We are a private builder, and we are more capital-constrained.”

With the help of Hanley Wood Market Intelligence and a group of other market experts, we've taken a closer look at six markets where builders are buying. We chose some obvious ones, such as Phoenix and Southern California, as well as some less obvious markets, like Indianapolis.

Learn more about markets featured in this article: Los Angeles, CA, Indianapolis, IN, Houston, TX.