M/I Homes, which cut its debt by more than 71 percent in 2007, expects to completely eliminate its home building-related debt by the end of this year.

That represents one ray of hope for this Columbus, Ohio-based builder after a year when it lost $135.4 million--versus a net gain of $38.9 million in 2006--on revenue that fell 20.2 percent to just over $1 billion. During the year, M/I's deliveries (including those from discontinued operations) fell by 18.7 percent to 3,288 units, its new orders declined 11 percent to 2,513, and the value of its backlog dropped 56.3 percent to $233 million. The company invested $118 million in spec construction last year, and ended 2007 with 632 spec homes, down from 717 spec units a year earlier.

During the year, the builder reduced the number of lots it owns and controls by nearly 28 percent to 16,173. And its land sales totaled $89 million, from which it earned a $50 million tax refund it expects to collect in the first quarter of 2008. Last year, M/I recorded $221.5 million in pretax charges, $210.9 million of which were taken to cover land-related impairments and abandonments. (Last year, M/I exited the West Palm Beach, Fla., market, where it liquidated 3,000 lots.) All told, M/I impaired around 7,000 lots in 85 of its communities. The company had $6 million in land contracts at the end of 2007, and will continue to sell land through the remainder of this year; however, it also expects to purchase around $30 million in new land, according to its CFO Phillip Creek.

M/I issued $100 million in preferred stock in 2007, which CEO Bob Schottenstein says helped stabilize its balance sheet. The company also has a $68 million deferred tax asset on its books the full value of which it expects to receive down the road, says Creek.

However, the big question for M/I, as for every builder, is when will business turn around? In January, M/I sold 160 homes, down 40 percent from what it sold in the same month a year ago. Schottenstein candidly admits that it could be "a long time" before Columbus--where M/I controls 39 percent of home sales--gets back on its feet, primarily because Columbus, like the rest of the Midwest, suffers from poor job growth. M/I's gross margins in that region range between 12 percent and 15 percent.

The builder's Florida market is also soft, as new orders there fell 10 percent last year and deliveries were down 40 percent. Margins in Florida were only 12 percent, says Creek. The builder has greatly minimized its presence in the Sunshine State, where it reduced the lots it owns by 41 percent to 5,300.

One bright spot for M/I has been the Mid-Atlantic region market, where deliveries and new orders increased in 2007, by 25 percent and 10 percent, respectively. Its business in the Carolinas has been particularly strong, although sales in the Washington D.C. area remained "weak," says Creek, as were margins there, which were 12 percent versus 16 to 18 percent in the Carolinas. Without providing details, Schottenstein says that his company has implemented a new system "to give us more insight into customer trends."

The company's mortgage division, which captured 86 percent of the company's buyers from continuing operations in the fourth quarter, saw a decrease last year in originations to 812. Thirty percent of its loans are FHA, and the average amount borrowed was $253,000.