Remember that rally in builder stocks that started in spring, bounced around in early summer and then built into September? It's gone.

Builder stocks were crushed Thursday. Horton (NYSE:DHI), Pulte (NYSE:PHM), Centex (NYSE:CTS) and Lennar (NYSE:LEN) were among the top-10 losers on the street with price drops of 21%, 18.5%, 16.3% and 16%, respectively. Beazer (NYSE:BZH) did not make that list, even though it was off 20.8% at $2.47. Hovnanian likewise didn't make the list but was down 15.3% at $3.76.

Nearly all the stocks in the builder group were near 52-week lows Thursday as reaction to the first earnings releases of the third-quarter earnings season turned decidedly negative and hedge funds apparently continued to unwind their short positions in builder stocks. A quick look at the short interest ratios as of the end of September (the most recent available) shows that positions in several of the most heavily shorted companies—Beazer (NYSE:BZH), Standard Pacific (NYSE:SPF), Hovnanian (NYSE:HOV) and Lennar—were down between 30% and 60%.

There's no doubt that short selling and covering contributed to some of the wilder swings in the builder stocks during the past several months. After Thursday's bloodbath, that could be over, for now at least. The most heavily beaten down stocks might bounce back on the slightest glimmer of hope, but it appears more likely they will limp along where they are now.

Earnings season has so far disappointed the street, with the three companies that have reported so far missing analyst estimates. NVR, as usual, did the best as it eked out a $36.5 million ($6.12 per share) profit, a feat the other large publics have been unable to accomplish for multiple consecutive quarters. Still, the best-of-breed builder missed expectations. Wachovia Securities' Carl Reichardt was expecting a profit of $7.35 per share on lighter land option write-offs, which he estimated at $8 million versus the $43 million actual. But the company beat his estimates on home sales revenue ($928 million vs. $860 million), and unit closings, which were down 21% vs. his estimate of -26%.

On a positive note, Reichardt wrote in a research note, "We believe NVR and perhaps other builders may see building material cost relief (beyond lumber) by 1H09 given falling raw material prices and continued new home sales rate deceleration. NVR might be best advantaged among peers given its focus on centralized purchasing and already-efficient product logistics/assembly focus." And, he added, NVR's balance sheet management remains exceptional in our view."

The reaction to Pulte's earnings, or lack thereof, was less positive. The loss was double street estimates, and write-downs were higher than analysts expected.

David Goldberg at UBS said in a note to investors, "Despite Pulte's robust liquidity, we continue to believe the company will underperform peers, given its: 1) longer land position; and 2) exposure to the active adult buyer segment, which we believe will be more impacted by the recent volatility in equity markets."

He kept his $8 price target on the stock, which ended Thursday at $8.11.

Michael Rehaut at J.P. Morgan was similarly disappointed. "Going forward, charges will remain large and likely increase over the next several quarters," he wrote to clients. "Moreover, orders fell 34%, worse than our -25%E, as PHM noted conditions ‘significantly worsened' during 3Q. Finally, despite generating positive cash flow in 3Q of roughly $185 million (JPM est.), PHM lowered its year-end cash position guidance by $100 mil. to a range of $1.6 to $1.8 bn. As a result, given our outlook for continued weak demand, still tight credit standards, and rising foreclosures, we believe pricing, which fell 5% sequentially, should remain under pressure and drive continued large impairments for PHM, as well as the industry well into 2009."

Rehaut was also negative on Ryland's results, which also were nearly double the street's estimates. "We believe RYL's incentives and price reductions were not aggressive enough amid continued weak market trends," Rehaut wrote. "While we believe this was enough to prevent a larger impairment charge this quarter, given our outlook for continued home price deflation well into 2009 as well as RYL's continued core operating EPS losses, suggesting that insufficient impairment charges have been taken to date, we expect further material impairment charges to persist over at least the next 3-4 quarters."

Taken togther, and added to the pre-announcement of continued depressed closings and orders by M/I Homes on Oct. 9, the results point to a dismal earnings season for the big builders, with little hope for a turnaround anywhere in sight.

Two of the most dire revelations to come out in the earnings and commentary thereon so far are that order declines, which are up against favorable comparisons with last year's depressed levels, appear to be accelerating and Reichardt, at least, sees trouble ahead for the active adult segment. Baby boomers have seen their retirement nest eggs get fried in the recent market turmoil, which is likely to make them pause before making significant life changes, or so goes the theory.

Clearly, analysts do not see this as an entry point.