TAKING THE PULSE: Most of the nation's builders haven't seen a brag-worthy quarter in some time, and that isn't about to change. Still, the builders - struggling to survive the worst downturn in generations - are showing signs of life.

Customers, long paralyzed on the sidelines by plunging home values, are stirring, reacting to tax credits for qualified buyers. While no one can say if recent positives are permanent, builders are sharpening their strategies, preparing for the eventual upturn. Bankruptcy possibilities no longer dominate industry conversations. Land charges, while still expected, are shrinking from the stunners of quarters past. And with land at bargain prices, builders are looking to reload.

The sector isn't breathing a sigh of relief just yet, though. Unemployment remains stubbornly elevated. Foreclosures persist, homes selling for steep discounts that catch buyers' eyes. These deals also drag down appraisals, threatening some contracts, the last things builders need. Meanwhile, rising interest rates are causing alarm, just as California's tax credit of up to $10,000 for new-home buyers nears exhaustion. The federal tax credit, up to $8,000 for first-timers, is over Dec. 1, so those contracts must be inked soon to allow for closings that meet the deadline.

With its recent fiscal second-quarter results, Hovnanian Enterprises Inc. (HOV) gave a hint of what to expect. For the period ended April 30, the New Jersey builder reported a loss of $118 million, or $1.50 a share - its 11th consecutive quarterly loss, but an improvement from the year earlier's $340.7 million, or $5.29 a share. The results included some $319 million of write-downs on land and other items.

 
   COMPANIES TO WATCH:

Lennar Corp. (LEN) - reports June 25

Wall Street Expectations: Analysts polled by Thomson Reuters expect a loss of 63 cents a share on revenue of $597.5 million. A year ago, Lennar reported a loss of 76 cents a share and revenue of $1.1 billion.

Key Issues: Lennar, the nation's fourth-largest builder by annual closings, has taken creative steps to sell homes, offering everything from no-money-down, no-closing-costs deals to one of the lowest mortgage rates the industry has seen - for the life of the loan. This quarter will show if buyers responded. Standard & Poor's Equity Research recently said that it maintains its hold opinion on Lennar, saying it sees "sales negatively impacted by contract cancellations and reduced orders, thereby lowering its backlog contract value."

KB Home (KBH) - reports June 26

Wall Street Expectations: Analysts project a loss of 64 cents a share and revenue of $339 million. KB Home's year-earlier loss was $3.30 a share on revenue of $639 million.

Key Issues: No. 5 KB Home has impressed the industry by redesigning its product to compete with foreclosures. "It's extremely affordable because it's a very small house," said John Burns, head of John Burns Real Estate Consulting. "It's a lower price point. They can compete with foreclosures and even go lower." That should help with the appraisals issue, he added. "There are few similarly sized foreclosures in the market that the appraiser can use."

Pulte Homes Inc. (PHM), Centex Corp. (CTX) - projected Aug. 3, July 28

Wall Street Expectations: For Pulte, analysts anticipate a loss of 55 cents a share on revenue of $647 million, compared with a prior-year loss of 63 cents a share on revenue of $1.6 billion. That compares with Centex's predicted loss of $1.12 a share on revenue of $563 million, compared with a year-earlier loss of $1.36 a share on revenue of $1.1 billion.

Key Issues: Pulte and Centex, currently the nation's second- and third-largest builders by closings, are set to join forces, building for everyone from entry-level to active seniors, and seize the top spot from DR Horton Inc. (DHI). Investors are keen to discover if the two companies picked the right time for the headline-grabbing move or if land prices have further to fall. "Did Pulte hit the bottom with their purchase of Centex?," said Morningstar analyst Eric Landry. "Did Pulte blow the horn that nobody heard?"

(The Thomson Reuters estimate and year-ago net may not be comparable due to one-time items and other adjustments.)

-Dawn Wotapka, Dow Jones Newswires; 212-416-2193; dawn.wotapka@dowjones.com