Meritage CEO Steve Hilton told analysts during a Tuesday morning conference call that the company will focus on "winding down" in already established communities and selling off some of the 809 spec homes the company is currently holding. He added that the company will be "very cautious" in purchasing lots, but if an attractive deal arises, it will buy.

"We are seeing an acceleration of interesting deals," he said, pointing to lots that Meritage recently purchased in Phoenix for less than $30,000.

The light-land position Meritage has -- with 9,095 lots owned -- has the company in a better position than some other builders and offers some maneuvering room.

"If we see an opportunity we will pursue it selectively to get back to profitability," he said, reiterating that Meritage would remain cautious with buying.

By reducing the current level of 809 spec homes ( up from 725 from 2Q08) down to 600--which the company hopes to do over the next few quarters--$40 million to $60 million in cash flow will be created.

"We are not in a position where we have to get rid of them," Hilton said. "It is not as out of balance as one would think. We're not panicking about it, but [spec home] numbers are higher than I would like."

The $144 million net loss for the third quarter the company reported late Monday included impairments and joint venture charges of $55 million and a $106 million charge to deferred tax assets. Minus those charges, the pre-tax loss was $7 million. And across the board, home closings (-25%), sale prices (-14%) and revenues (-35%) were down.

The strong position Meritage has in the Texas market has begun to decline with the affects of Hurricane Ike and the economic crisis continuing. Sixty percent of sales come out of the Texas market -- which has been among one of the strongest markets in the downturn due to strong population and employment growth.

"While orders there had already come down about 30% from the peak in 2006, Hurricane Ike further reduced sales, construction and closings in Houston, our largest market," he said. "That, combined with the overall impact of the financial crisis, contributed to a third-quarter sales decline of 28% from last year, resulting in a 16% decline year-to-date in Texas."

Hilton said that the company is still "operating profitably" in Texas, and even with the slowdown he is "confident prices will hold."

Meritage reported that holdings in Arizona account for more than half of the third-quarter real estate impairments coming from the state, primarily from the four attached-home communities that Meritage has in Phoenix. California made up another 20% of the impairments, as housing markets there were further highly subject to falling prices and an oversupply of new and existing inventory.

Arizona sales increased 17% year-over-year, while the largest percentage declines in sales were experienced in Florida (-74%) and California (-53%).

Hilton also called on Congress to introduce a tax credit to home buyers, much like what they did in the 1970s to restore consumer faith in buying.

"We need a stimulus package," Hilton said. "It is the quickest way to grow jobs." He pointed out that 3.1 new jobs are created for each new home built.

Hilton is hopeful that the national and international governments' actions will "restore faith in the credit markets, ease liquidity and stem the tide of foreclosures."

A turnaround in the new-home market can only help, with Meritage reporting third quarter net orders in decline of 29% from 2007 to 2008 after a 40% cancellation rate in the quarter, higher than the 27% and 29% rates in the first two quarters of 2008, but in line with 41% in the third quarter of 2007.

Meritage is holding a $119 million cash balance, no bank debt and no bond maturities until 2014.

Meritage plans to "generate positive cash flow for the next several quarters from our continued reduction of inventory and projected collection of roughly $80 million in tax refunds in the first half of 2009," according to Hilton. "We will continue to focus on protecting our balance sheet, and we believe that we are in markets that will offer some of the best long-term opportunities for homebuilders."

The company plans on doing this by taking on a more defensive strategy and continuing initiatives such as reducing inventory of specs and lots, reducing construction costs and reducing overhead expenses.

Learn more about markets featured in this article: Phoenix, AZ.