When D.R. Horton, the second-biggest U.S. home builder, couldn't sell a one-bedroom San Diego condominium listed for $349,800, it sold the property at auction for $220,000, a 37 percent discount.

D.R. Horton, with annual revenue of about $11 billion this year, and Hovnanian Enterprises, the sixth-largest home builder, now face the worst choice in the worst residential real estate slump since the 1930s. They're selling homes at any price they can get.

"It's desperation time, and some companies may not make it," said Alex Barron, a housing analyst at Agency Trading Group Inc. in Wayzata, Minn. "At this point in the housing cycle, if you have too much debt, it's hard to get out from under it."

Home builder profits depend on the cost of land, said John Burns, president of John Burns Real Estate Consulting in Irvine, Calif. Companies can still make money building on land purchased before the 2005 peak of the five-year U.S. housing boom, though a fall in home prices of as little as 10 percent might wipe out those profits, he said.

"They are all losing money," Burns said. "They'll talk in terms of gross margin and it sounds like they made money, but they actually lost money because they didn't make their costs."

The average cost to build a 3,340-square-foot home in the United States is $403,925, according to the National Association of Home Builders in Washington. That includes $219,015 for construction costs, $45,507 for the price of undeveloped land, $65,969 to prepare the land for building, marketing expenses of $11,258 and a sales commission of $19,499.

Not All Buyers Love New Deals

During Hovnanian's "Deal of the Century" promotion last month, the company sold a 2,900-square foot, five-bedroom, three-bathroom house at the Greenwood Manor development in Royal Palm Beach for $525,000, said Kathy Bell, who bought a house with the same floor plan down the street for $575,000 in March 2006.

"It really stinks," said Bell, 50, a medical billing specialist who lives in Hovnanian's development in Royal Palm Beach. "We were here in the beginning, and we didn't get any deals. It's very upsetting."

Hovnanian spokesman Jeff O'Keefe said he would not comment on prices paid for properties sold during the promotion. Chief Executive Officer Ara Hovnanian said the company sold 2,100 homes in the three days, more than double expectations.

The 15 largest U.S. home builders are saddled with $7.75 billion in debt due to be repaid through 2009, and the companies' bonds trade as if they were junk, according to credit-default swap data.

Focusing On Survival

Beazer Homes USA, based in Atlanta and active in the southern United States, has conducted three national sales since June.

"We're not focused on growth," Ian McCarthy, chief executive officer of Beazer, said at a home building conference in New York on Sept. 18. "We're very much focused on today and getting through this downturn."

Pulte Homes, the third-largest home builder by revenue, ran a newspaper advertisement in September in which the Bloomfield Hills, Mich.-based company offered to pay buyers' mortgages and taxes for six months if they bought homes at its developments in suburban Chicago. Spokesman Mark Marymee would not specify what profit margins were or how many homes the company sold.

"The builders are very hush-hush about the prices they're selling new homes for," said Andres Wilken, who writes the South Florida Housing Bubble blog in Tamarack.

Ryland Group, based in Calabasas, Calif., offered suburban Chicago buyers a free finished basement and a plasma television in a September newspaper advertisement.

Miami-based Lennar, the biggest U.S. home builder, put 16 homes in Palm Springs, Calif., up for auction on the Internet in April, selling 11, according to Tony Isbell, president of RealtyBid.com in Rainbow City, Ala., which conducted the auction.

"A lot of people see it as desperation," Isbell said.

Decline's End May Not Be Near

D.R. Horton of Fort Worth, Texas, overcame qualms about its image with the Sept. 29 auction of 56 unsold San Diego condominiums. The 200 bidders who filed into a tent on the grounds of the Doubletree Hotel in Mission Valley, Calif., needed a $5,000 cashier's check to prove they were serious, said Steven Moran, an agent with Century 21 Award in San Diego, who attended with 11 clients.

To achieve a balance between the number of buyers and sellers, home builders need to cut in half inventories of unsold new homes, now representing a backlog of 8.2 months, said Michelle Meyer, an economist at New York-based Lehman Brothers Holdings, the fourth-biggest U.S. securities company by market value.

Meyer's outlook calls for sales to drop until the third quarter of 2008 and for housing starts to decline until 2009.

"We would not be surprised to see one or more of the larger home builders become insolvent if current pricing trends persist into 2008," Mark A. Morgan, senior equity financial analyst for New York-based Rochdale Securities LLC, wrote in a note to clients on Sept. 27.