At the dawn of 2012, the U.S. economy shows signs of a fitful recovery. But home building is still mired in a multi-year slump. The bottom line looks bleak, with housing starts near an all-time low. But fall brought glimmers of hope: an uptick in builder optimism, a modest rise in single-family starts, and even a drop in the unemployment rate.

At year’s end, the responses to Builder’s annual “State of the Industry” survey reflect that mixed outlook. The 345 readers who responded represent a hard core of survivors, united by a resolve to carry on.

The Numbers: Creeping Upward

Resolve—and a smidgen of good news.

The share of builders who see market conditions getting worse has diminished, from a whopping 74 percent in 2008 to just 39 percent this year. Likewise, fewer builders see their own business prospects worsening, while a larger segment sees better times ahead. One telling sign: Just 1 percent of our sample expects to go out of business in 2012—the lowest figure in four years.

Business measures show similar gains. In 2008, just 10 percent of readers reported an increase in closings; 60 percent said closings had declined. Over four years, the balance has shifted—in 2011, more builders finally saw closings increasing (28 percent) than decreasing (23 percent).

Hiring and layoffs fit the pattern, too. In 2008, 57 percent of respondents had cut their workforce, while just 3 percent had beefed it up. By 2011, only 34 percent had laid people off, and 15 percent had taken on help.

Coping Strategies

As usual, our survey asked about how builders have changed their practices to cope with the challenging market. This year’s answers are in line with years past: Builders continue to value-engineer, build smaller, or try out new market segments or product types.

Asked about other tactics, builders list a range of adaptations. Many have turned to remodeling, and everyone is tightening their belt. Wrote one small builder, “I do all the work: sales, bills, marketing, management, and field work. Sixteen-hour to 18-hour days just to pay the bills. NO PROFIT.” Wrote another, “Nobody gets a salary any more.”

Some builders noted that upscale markets look stronger than mid-range and starter markets, where price pressure is fierce and financing is scarce. One private builder wrote, “We have abandoned the starter-home market due to lack of credit to qualify and slack demand.”

One small custom builder sees promise in a wealthier niche: “We build in upscale neighborhoods where active retirees want to be. The homes are totally complete so buyers can move in, along with extensive landscaping. For the past two years we have sold everything we have built at asking price in a very short time.”

Small builders are leaning on their biggest advantage: one-on-one contact with clients. One phrased it this way: “Frequent on-site presence daily, with total attention to detail.” But bigger operators have their own edge: the means to buy cheap land. “We are buying lots in bulk at discounted prices,” wrote one.

Learn more about markets featured in this article: Durham, NC, Raleigh, NC.