M.D.C. Holdings Inc.'s (MDC) second-quarter loss narrowed on a larger year-earlier write-down as new orders increased for the first time since 2005.

The housing sector has been slammed by mounting losses in recent quarters as the weak economy and tighter credit standards keep buyers away and rising foreclosures inflate supply. M.D.C., like other homebuilders, has been introducing smaller, more affordable homes in many of its markets in an effort to boost sales, and Chairman and Chief Executive Larry Mizel called the effort well-received.

Rival builder KB Home (KBH), which had adopted that strategy as well, last month reported a bigger-than-expected drop in orders, leaving analysts questioning whether smaller remains better.

Meanwhile, the company posted a loss of $29.6 million, or 64 cents a share, compared with a year-earlier loss of $100.7 million, or $2.18 a share. The results included a $1.2 million and $88.3 million in write-downs, respectively.

Revenue dropped 52% to $195.3 million.

Analysts polled by Thomson Reuters expected a 58-cent loss and revenue of $181 million.

Home closings declined 49% and average selling price slid 6%. New home orders rose 1.9% to 977, boosted by increases in the Mountain and East regions, as the cancellation rate dropped to 20% from 43%, mainly because of a lower beginning backlog. Mizel said the company cut its inventory of finished, unsold homes by more than 70% during the quarter.

MDC's shares closed Thursday at $34.19 and haven't traded premarket.

-By Kerry Grace Benn, Dow Jones Newswires; 212-416-2353; kerry.benn@dowjones.com