Brent Anderson – VP, IR Steve Hilton – Chairman and CEO Larry Seay – EVP and CFO

– : – : – : – : – : – : Tim Jones – Wasserman & Associates Shaumo Sadhukhan – Lotus Partners – : Nicole Terraco – Babson Capital – :

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: : : : : : : : ': With me today are Steve Hilton, Chairman and CEO of Meritage Homes, and Larry Seay, Executive Vice President and CFO of Meritage. : With me today are Steve Hilton, Chairman and CEO of Meritage Homes, and Larry Seay, Executive Vice President and CFO of Meritage. : With me today are Steve Hilton, Chairman and CEO of Meritage Homes, and Larry Seay, Executive Vice President and CFO of Meritage. ':

: : : ': ': ': : : ': : ': : : : : : : : : : : : ': : : : : ': : : : : : : I now turn the call over to Larry Seay our Chief Financial Officer and I would now prepare remarks with a few closing thoughts before Q&A. Larry? –: I now turn the call over to Larry Seay our Chief Financial Officer and I would now prepare remarks with a few closing thoughts before Q&A. Larry? : I now turn the call over to Larry Seay our Chief Financial Officer and I would now prepare remarks with a few closing thoughts before Q&A. Larry? ': I now turn the call over to Larry Seay our Chief Financial Officer and I would now prepare remarks with a few closing thoughts before Q&A. Larry? –: I now turn the call over to Larry Seay our Chief Financial Officer and I would now prepare remarks with a few closing thoughts before Q&A. Larry? : I now turn the call over to Larry Seay our Chief Financial Officer and I would now prepare remarks with a few closing thoughts before Q&A. Larry?

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: Robert Manowitz – UBS: : : ':

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: : ': : Robert Manowitz – UBS: : ': : :

: ': : ': : Robert Manowitz – UBS: :

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: : ': : Robert Manowitz – UBS: Right, well keep up the good work and thank you.

Okay, thank you.

: David Goldberg – UBS: Good morning.

Good morning, Dave. David Goldberg – UBS: If I could kind of start, could you give me an idea where land prices are maybe in the market now relative to where have to be for you guys to be able to pencil deals and what gives you the confidence, having raised some capital that land price decline is going to occur over, let say, the next 9 to 12 months.

: ': : : : : David Goldberg – UBS: So, I guess what I'm trying to do is to reconcile that thought, that the banks are getting more aggressive with the small privates and you expect to see land prices coming down in the second half of the year, with the idea that you feel like your impairments are mostly behind you and that because the big publics are generally holding their prices, which I don't [ph] absolutely agree with, you're not going to see more home price deterioration from the small private builders and the impact then on the market. Can you maybe help me understand the way you're thinking about that a little better?

Well, a lot of the small private builders can't lower their prices any more because they have secured bank financing. And the values of the homes are less than their financing release prices. So, the only way those homes and lots are going to be released are when they go back in the banks. And relative to the publics, the private guys just don't have a lot of inventory in pure numbers. Most of the larger markets that we are in, the publics dominate 60% to 70% of the market. And I just don't see the private guys having an impact on the public. So I think once the banks get some of these assets back this inventory will able to be cleared. But the public guys have already cleared their inventory for the most part. David Goldberg – UBS Securities: So to say it correctly, the banks bringing those assets back on the market is not going to impact the home prices on the overall market? That's what you're trying to say?

–: David Goldberg – UBS Securities: –: –:

Well, I'll take part of it and Larry, you take a little part of it. But essentially, the way we are looking at it is there's a lot of money out there today chasing land. A lot of what we call "vulture" funds and we think some of this capital is going to get deployed. And we think builders are going to be adopting more of a land-life strategy, as we have. And a lot of these "vultures" or investors will be selling lots on terms or on options. And we won't be able to maybe go back to some of the land bankers we did business previously, but they'll be new entrants into the market in terms of some of these investor funds that will be buying these lots and then selling them on more terms or option-type deals. And some of our land bankers are quite healthy and made it through the market pretty well and we expect them to be in business going forward. Larry, did you want to add to that anything?

Yes. We have several land bankers that called us up and are looking for new business that were well capitalized and minimize lot losses and they just figure this is one downturn that they have to ride through. And they've been in business for 20 years and plan to be in business for another 20 years. Having said that, the terms may be a little more expensive, or more onerous, and we'll have to weigh that against putting things on our balance sheet. I would say we probably won't get up to the 90/10 ratio we had where 90% of our lots were optioned, but we still plan to use a land-life strategy and use options to the extent available and that they make economic sense. David Goldberg – UBS Securities: Perfect. I appreciate it.

Your next question comes from the line of Nishu Sood with Deutsche Bank. Rob Hansen – Deutsche Bank: Okay. This is actually Rob Hansen on for Nishu. Was there any benefit from prior impairments in the gross margin?

I'm sure that that's the case. Part of our impairments related to option deals we walked [ph], which obviously doesn't benefit future margins, but some of that did relate to lots and houses owned, although we don't break that number out and I can't tell you what that number is precisely. Rob Hansen – Deutsche Bank: –:

–: –: –: –: Rob Hansen – Deutsche Bank: Okay, thanks.

Your next question comes from Susan Berliner with Bear Stearns. Susan Berliner – Bear Stearns: Morning. I was wondering if you could help us on the joint venture. I know it was notable impairment this quarter and I guess I was just trying to figure out going forward what do you think is going to happen with the joint ventures? And if you can give us color on what you're seeing out there on the joint ventures?

Larry, go ahead.

–: Susan Berliner – Bear Stearns: –:

–: –: Susan Berliner – Bear Stearns: That's great. Thanks very much.

Your next question comes from the line of Joel Locker with FBN Securities. Joel Locker – FBN Securities: –:

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Yes. Yes. Joel Locker – FBN Securities: –: –:

Yes. Joel Locker – FBN Securities: –:

Larry?

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Mid-to-high teens you mean, Larry.

Yes. Mid-to-high teens, excuse me. I misspoke. Joel Locker – FBN Securities: Right. Mid-to-high teens. All right. That's it. Thanks a lot.

Your next question comes from the line of Carl Reichardt with Wachovia Securities. Carl Reichardt – Wachovia Securities: –:

Yes. I wouldn't say it is theoretical, because I think these are lots we are actually thinking about buying. And we are thinking about building smaller houses. Before we were building houses on these lots that were probably averaging like 2,800 feet, so we are probably thinking about building houses that might average 1,800 feet. So 1,000 feet less, with less features, where we can bring the average price down into the 2's, where originally they were approaching $500,000. So there's a real compelling opportunity really to find a broader audience. And at $280,000 or $275,000 if we pay $45,000 cash for these lots, they're fully improved, we can make a 20% gross margin, which should lead, with some volume, to 10% net. Carl Reichardt – Wachovia Securities: Okay. Then your commentary earlier about the variety of entities out there looking at land right now, if this opportunity is so sort of obvious and in front of you, isn't it your sense that other builders who have liquidity, of which there are some obviously, and the vulture funds themselves would be looking at similar transactions? And how are we to be confident that that pricing will stay so attractive for a long period of time if there's all this capital looking at deals currently?

Well, I think inherently builders can pay more than vultures for finished lots. So I think public builders will probably be the ones that will be buying those lots versus the vultures that will be more focused on the periphery, on more of the outside-the-loop locations. And then I don't think all builders are in a position to buy any lots. I think there's a lot of builders that are going to be on the sidelines for quite some time because they don't have the balance sheet to buy lots of they just have too many lots that they're still working through. So I don't think the competition is going to be as keen as you might suspect. Private guys aren't going to be able to get credit and not all the public guys are going to be able to participate. Carl Reichardt – Wachovia Securities: Okay, great. Appreciate the color. Thanks, Steve.

Your next question comes from the line of Timothy Jones with Wasserman & Associates. Tim Jones – Wasserman & Associates: –: –:

Are you talking about community count? Tim Jones – Wasserman & Associates: Yes, community counts.

Well, we had several large communities come on line last year in Nevada, which increased our community count, but they had been planned for quite some time. And about 120 of our communities, out of our 215 approximately, are in Texas and that community count really hasn't changed. I think you'll see in the latter part of this year our community count really start to decline. I can't give you a number, but I can tell you we are going to finish the year below 200. And it should start to decline at a pretty good clip over the next couple quarters.

I would add to Steve's comment about Nevada, that Nevada had an unusually low community count beginning in 2007 because it had sold out a lot of communities very fast and these newer communities hadn't yet come on line. So it was unusually low. Tim Jones – Wasserman & Associates: –:

Yes. We have about 1,000 lots, plus or minus, in Nevada and we are not opening any new communities other than what we've got right now in the large joint ventures up there, one called Inspirada and other one called Providence. And we are just going to work our way through those. We're certainly not buying any lots in Nevada and we are comfortable with where we are. Tim Jones – Wasserman & Associates: –:

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I think the builders have seen that they've dropped prices far enough and so far that it obviously today in many cases doesn't make sense to start a new-build house on a vacant lot if the cash you're going to generate from building that house and selling the house and getting a recovery of cash out of the lot that you've already made is just a fraction of the value of the lot of the original value. So people are making the economic decision that the residual lot value is at a point with prices where they are now that they don't want to continue to drop prices because the cash flow generation gets to be too minimal to be worth the effort. So people have the economic incentive today to hold prices because of that.

–: –: Tim Jones – Wasserman & Associates: –:

–: Tim Jones – Wasserman & Associates: Oh, I agree with you. There's a (inaudible).

Yes. Yes. Okay, do you have a follow-up question or was that it? Tim Jones – Wasserman & Associates: I guess you talked about overhead. What's your headcount and what was it versus the peak?

–:

That's about right. We don't have the specific numbers at year-end compiled yet, but that's pretty close.

Quarter end, yes. Tim Jones – Wasserman & Associates: Okay. Thank you so much.

Did I say year end?

Your next question comes from the line of Shaumo Sadhukan with Lotus Partners. Shaumo Sadhukhan – Lotus Partners: Hi. Can you talk about the 889 lots that you bought this quarter? What are margins like on those lots?

–:

–:

(inaudible).

We may recover 10% of the sales price in cash, so we look at that and go, gosh in that case we are making a zero accounting margin but we are making a 10% cash margin. It probably makes sense for us to go ahead and build through that and recover that cash. On the other hand, if our cash margin was just 2%, we wouldn't buy that lot. We would go gee, it is not worthwhile for us to continue through the subdivision, buying lots from a land banker, building out the houses to only make a 2% cash return. But 8%, 10% cash is probably kind of the low end of our range of continuing to buy lots to recover the cash we had to spend.

It would also depend on how many lots we had on our balance sheet already in that community. If we have a lot of lots, we probably wouldn't be buying them as aggressively if we didn't have any, or a very small number. Shaumo Sadhukhan – Lotus Partners: –:

… :

Well, first of all two-thirds of those option lots are in Texas, which are still making relatively good margins. So you're only talking about a third of the option lots being outside of Texas, and those are spread out in communities where today most of them meet that minimum cash return criterion or else we would have terminated them already.

So maybe 4,000 low margin lots. Shaumo Sadhukhan – Lotus Partners: Okay. So that's within the 9,900 that you own there's some low-margin lots and maybe 4,000 low-margin lots in the options, in the option piece? Is that a good way to think about it?

Well, on the option side I think you've got it right. I would have to think about what you said on the owned lots.

Well the owned lots we are looking at cash return. In addition to margin we are also looking at the cash return for the lot. So we really look at those as a return of some capital. Shaumo Sadhukhan – Lotus Partners: –:

–: –:

Because it takes a while to get the subdivision up and running. But that's exactly the point we attempt to make, is that because we have a short lot position, we can work through these legacy lots, as you call them, that have lower margins and start to reload with newer, lower priced lots more quickly than maybe other builders. But that really won't start to happen until, at least in earnest, until the latter half of '09.

This is absent any housing appreciation. If we have housing appreciation it will be beneficial to all the lots, but, assuming we don't have any, we could still make a profit in the back half of next year on newer lots. Shaumo Sadhukhan – Lotus Partners: Right. And so these lots that you're talking about in California, where the prices have fallen by more than half, let's imagine you were to buy them and there was a little bit of price depreciation still to come in those markets and you're at current pace. Can you still make this 20% gross margin, 10% net margin, operating net margin before tax? Can you still make those at current pace even if prices decline a little bit, or are we talking (inaudible) ?

No. If we buy those lots and we calculate wrong and we underrate them at 20% gross margin and the price declined from there, then we are going to make less. So to the extent that they decline, but we can't be out there buying lots if we don't think prices have stabilized. Shaumo Sadhukhan – Lotus Partners: Okay. I guess my question is can you do it at current pace? That's really the key question. Can you make those types of margins if you were to buy those lots today if price held, but could you do it at current pace, meaning do you need pace to pick up to get those types of margins back or can you recapture margin even at current pace?

–: –:

And again, it is not 0% or 10%. It is a continuum and if you're selling at a slower pace with a well priced, low priced lot you can make money. You just won't make quite as much money as if you were selling at a higher volume to cover your fixed overhead for that project. But I guess I would come back to California and our example. We only own about somewhere between 900 to 1,000 lots in California. That's it. So in these very difficult markets, we don't own very many lots. We've terminated most of our options. So our total exposure in California is not that large and we can start this process in California as we start to see the opportunities arise pretty quickly. Shaumo Sadhukhan – Lotus Partners: All right. Thanks, that's really helpful.

Your next question comes from the line of Joshua Pollard with Goldman Sachs. Chris Hussey – Goldman Sachs & Co.: , : –:

–: Chris Hussey – Goldman Sachs & Co.: Going forward, do you guys envision yourselves with maybe 50% or greater of your business coming out of Texas?

No. No, certainly as the other markets recover it'll probably drop down more to about one-third, which is where it was a few years back. And we are very comfortable having one-third of our business in Texas and two-thirds in the other five states. Today, because the other five states have been more dramatically affected by the downturn, we are a little more than half in Texas, but we expect that to turn over time. Chris Hussey – Goldman Sachs & Co.: That's fair. On the joint venture, the old Chrysler property, is it your intention to walk away from that property, or are you guys going to stay in that joint venture, you've just written it down to zero?

–: Chris Hussey – Goldman Sachs & Co.: But, if there's a capital call within that 18 months you guys would …

Well, there won't be. Chris Hussey – Goldman Sachs & Co.: Okay. There won't be. And then finally, could you maybe talk a little bit about the owned lots? What's the investment that you require in those owned lots to get them so you could build a house on them?

Larry?

–: Chris Hussey – Goldman Sachs & Co.: Okay. So the bulk of your investment then, going forward, is going to be buying out these option lots rather than investing in your lots.

Right. There obviously is some of that, but it is not a huge number. Chris Hussey – Goldman Sachs & Co.: Great, thanks guys.

Your next question comes from the line of Nicole Terraco [ph] with Babson Capital. Nicole Torraco – Babson Capital: –:

Well, we have very little in the way of direct guarantees. That number I believe is about $5 million. The other significant group of guarantees we have are what we call bad-boy guarantees, which only spring into place if the venture partners were to file a voluntary bankruptcy in most cases. Nicole Torraco – Babson Capital: Wait. Do you have that number?

Well, I don't have the precise number right now, but last quarter it was $88 million and I don't expect it to change a whole lot from last quarter. Nicole Torraco – Babson Capital: Okay. In terms of your debt covenants, do you have a leverage covenant right now or is it just the coverage and the tangible net worth?

–: –: Nicole Torraco – Babson Capital: –:

–: –: Nicole Torraco – Babson Capital: Okay. Thank you.

Management, would you like to take one last question?

Yes, one last question, please.

Your final question comes from the line of Jim Wilson with JMP Securities.

Good morning, Jim. Jim Wilson – JMP Securities: –: –:

Well, I think in California net prices have dropped probably 30% to 40%, in Arizona 25% to 30%, Las Vegas 25% to 35%, Orlando 25%, 30%. Now I think in all those markets we are pushing hard this quarter to hold prices. We have very few completed spec homes and we are going to try to hold prices on new dirt sales. Jim Wilson – JMP Securities: So really all of them you think, with this kind of drop, are in a position to start holding prices?

That's right. Jim Wilson – JMP Securities: All right, that makes sense. All right, thanks a lot.

Okay. Thank you very much everybody. We'll look forward to talking to you again in Q2. Good day. Thank you.

This concludes today's Meritage Homes first quarter 2008 earnings conference call. You may now disconnect.