<<1) If they sell parts of their land they will book some good profit..however, then their future inventory is gone.>>
SPF has 3.5 years of owned land inventory (plus another 2-3 years of land controlled under options). Selling some today at a premium to cost (with a house on top of it, of course) produces earnings and increases book value. Not replacing the inventory or using land options enables free cash flow generation. SPF would still have 2.5 years of owned land (and book value would be that much higher).
<<2) Debt - Libor going over 5% is really going to squeeze their cash flow...>>
A substantial portion of SPF's debt is FIXED RATE (with 5-10 year maturities) at sub 7% interest rates. Maybe your thinking of a small private builder with bank financing.
<<3) Buybacks at this level are extremely risky. I agree that tapping the market is good to keep the price reasonable, however burning up needed future cash is a very risky move..>>
Buybacks are OK if liquidity and leverage are in good shape and is a better alternative to buying land (especially given SPF's large land bank). The ROIC on a buyback is 20%+ at the current stock price.